Investing, like politics, has a lot more noise than true signal. My investment philosophy is to separate the signal from the noise … and to use to my advantage the fact that I understand “noise” better than most.
I have to say that it has performed exceptionally well during this election season – essentially allowing me to ignore all the day to day back and forth and focus on the clear signals.
I’ve been saying for weeks now that, contrary to popular expectations, the stock market was likely to rally to new highs before having a more serious correction. I could say that with confidence because there were numerous signals suggesting higher prices to come AND the “noise” we have been experiencing around the election was well within tolerable levels.
Even on the eve of the election, as it became clearer that Trump had a real chance to win and stock futures started crashing, I could still see that we were within acceptable levels of noise. While everyone was freaking out over this:
I was looking at this:
The sharp drop in the futures markets on the night of the election barely even breached the SSI Yellow Zone. (The SSI Yellow Zone tells us when an asset is getting close to correcting more than it should, but it hasn’t yet stopped out.)
Of course, we had seen this script before … with Brexit. That was also reassuring.
Last week we noted how the S&P 500 was likely to rally after having been down 8 days in a row. Since then the S&P 500 is already nearly 4% higher. I also told you a couple of weeks ago about the strong seasonal influence for stock prices through January.
My time-cycle forecasts continue to suggest that this strength in the market could continue into the end of December.
Now don’t get me wrong. I’m not suggesting that the election of Donald J. Trump as the 45th president of the United States of America is all noise and no signal. There are some serious signals developing, which I’ll be covering in the coming weeks.
But when it comes to the U.S. stock market, the signal for higher prices was there before the election and most of what everyone else was freaking out about turned out to be noise.
As long as everyone else is willing to let themselves get swept up in the noise, I’m confident that there will continue to be opportunities for risk-savvy investors to profit.
I hope you will be one of them,