As we look back on 2015, we conclude that it was a mild bear market year. Sure, just looking at the big-cap indexes, you don’t see much bearishness—the S&P 500 was down 2.5% coming into this week, while the Nasdaq was up about 4%. But the vast majority of stocks lost ground this year; small- and mid-cap indexes were down about 5% for the year, and even the equal-weighted S&P 500 Index (where all 500 components count the same) was down 6.4%.
As for the broad market, we know it’s been rough sledding given the Two-Second Indicator’s repeated red lights. But here’s a figure that surprised us—according to Lowry’s, as of the middle of last week, 49% of all stocks were at least 20% off their highs. Sounds like a bear market to us! In fact, 2015 has a chance to be the first time in 25 years that cash (making 0.1%) outperformed both stocks and bonds. We should all have been working on our putting game!
Kidding aside, we present these stats not as a downer, but to provide perspective; don’t beat yourself up if you lost a little money this year and had some rough stretches. And if you’ve done really well, buy yourself a cocktail! We’ve been able to stay in the black this year by avoiding mistakes, and that’s a good thing. But nobody printed money in 2015.
As the calendar flips to 2016, the keys will be to remain flexible and follow your plan. Right now, we’re in a cautious stance, mostly because all of our market timing indicators are flashing red. Thankfully, we own some resilient stocks, but we’re still sitting on 45% in cash.
We believe any scenario is plausible in 2016: A sustained decline as the selling pressures spread (our plan would be to quickly sell our weakest stocks and move to a 60%-plus cash position); continued choppy, range-bound action (our plan would be to do select buying here and there while quickly selling any losers); or a sustained uptrend, led by the aforementioned resilient growth stocks (our plan would be to buy two or three new leaders immediately and probably buy others if earnings season goes well).
Whatever happens, we promise to do what we’ve done for the past 46 years—keep you on the right side of the major trend, recommend the top leading stocks and handle them properly, giving you a chance for big winners while keeping risk in check. Cheers to 2016!
This is an excerpt from Cabot Growth Investor, where we’ve been picking the best growth stocks since 1970. Cabot’s flagship advisory combines expert stock selection and award-winning market timing. It’s the most complete and most helpful, growth-oriented investing advisory available anywhere.
Michael Cintolo is Cabot's Vice President of Investments and Chief Analyst of Cabot Growth Investor and Cabot Top Ten Trader. To read customer reviews of Cabot Top Ten Trader, click here. To read reviews of Cabot Growth Investor, click here.