The month of October was one of the best months for stock market returns we have seen in quite a long time.
Everything seemed to come together at the end of the month with Europe saying they came to some agreement to stop the European crisis; the U.S. reported surprising growth numbers (GDP 2.5%) and the earnings season surprising many to the upside.
Was the rally in October overdone? Is the market now overbought?
It is very common to see the best days, weeks, months or years follow the worst. With the huge market selloff we experienced over the summer and during September, it’s no wonder we would have a huge rally in October.
For all those investors out there that tried to time this market and sold out of their investments, most didn’t get a chance to get back into the market in time as its rise in the month of October was so rapid, it caught many by surprise.
As many investors say, you can’t time the market!
If you try to, it rarely works out. In many instances, an individual will get out near a bottom and won’t unfortunately get back in until the stock market is a lot higher than the level they originally sold at. As statistics show, if you miss the best days or weeks in the stock market, it can have a significant effect on a portfolio’s returns over a short and long period of time.
So, are we now out of the woods with respect to the European crisis?
The quick answer in my opinion is no. There have been very few details released since the announcement outlining what was to happen with the European bailout plan.
When will this plan take place? Where will the money come from to backstop the region and what is going to happen in Greece?
It was assumed by many, including myself, that Greece would receive the bailout money it required to meet its debt obligations and the country would continue to move forward with its austerity measures.
However this is not necessarily the case. The Greek Prime Minister has decided to call a referendum on the bailout issue, thus allowing the Greek people to vote on whether they agree with the plan or not. From what we have seen and heard in Greece, this vote may not be a favourable one for the bailout plan and now all of a sudden the extensive, three-pronged European plan that has been recommended to stem the crisis in Europe is being called into question.
Looking ahead, there is no doubt that the coming days and weeks will be crucial. There are European and G20 meetings happening at the end of this week that should give investors more information.
Ultimately, the markets in North America and the global markets for that matter will overcome what is happening in Europe.
There will be a resolution!
The only question in my mind is, how long will that take?
In the meantime, I recommend investors continue to buy good quality names; best in class companies that are doing well and that are “cheap” by looking at historical pricing. If these companies pay a dividend as well, then this would be the best type of investment to make for individuals looking for growth.
If you have any questions regarding the above article or are looking for an investment advisor to help you with your portfolio, please visit my website at www.investmentadvisorgta.com. I will be glad to speak with you.
Allan Small is a Senior Investment Advisor with DWM Securities Inc., a DundeeWealth Inc. Company. This is not an official publication of DWM Securities Inc. The views expressed are those of the author alone and are not necessarily those of DWM Securities Inc.