In the history of stock exchange, years like this have always ended poorly. The Editor in chief at Stock Trader’s Almanac, the annual of the American stock markets, who is also a well-known portfolio manager, Jeff Hirsch recommends noble metals and the strong dollar instead of shares to retail investors. According to his calculations, the value of American indexes will drop by 25 percent in seven months from now. We are already in the ‘bear market’, and we will stay there for a couple of years – says the interviewee, who thinks America is more likely to elect another democratic for president than a republican. If it does happen, then – based on lessons from history – the stock market will get stronger and the dollar will weaken next year.
Péter Zentai: At the beginning of the year, CNBC issued an alert. It said to retail investors to ‘stop and leave the game’. Do you think that this alert was issued for the whole year or just for a couple of weeks or months?
Jeffrey Hirsch: Historical patterns, on their own, are telling us to be extremely careful this year. In a hundred years, it happened only once (in 1988) that the stock exchange did not decline at the end of the second term of a given president. These election years are known to be bad signs… This is not numerology: in years like this the president, the government and the legislation are always ‘lame ducks’. Based on the data, it is also a bad sign that the so-called Santa Claus rally, which is typical for the winter, did not happen. From the first week of the new year, share prices started to fall.
What is the extent of falls typical for years similar to this?
From data going back to a hundred years, we know that on average Dow Jones is in 14 percent minus, while S&P500 is in 11 percent minus at the end of such years.
The current world political and economic events are ‘encouraging’ the realization of the historical patterns. It seems that the predictions in the stock exchange almanac are true…
Of course, we could not conclude from the data of previous decades that this year China’s economy would significantly slow down, oil prices would plummet, a conflict would develop between Iran and Saudi Arabia, and migrants would flood Europe. All of these events on their own – regardless of the experiences of one hundred years – ruin the prospects of this year’s stock exchange.
So it was well-founded that I warned investors via CNBC: they should be extremely cautious, and should stay put for a while. Of course, they should not sell everything, but they should not buy anything either. Not shares, at least. What they can do is wait patiently. There is no need to be hyperactive!
Do you do the same?
I opened serious gold positions in November for my clients and me. In world economic and world political constellations similar to this, noble metals are extremely likely to become stronger. At the same time, I am shorting S&P. This is the right time to buy treasury bonds and keep cash, especially dollar.
Do you expect any further strengthening of the dollar? How severe weakening is expected on share markets?
It strengthens the dollar, that in times of global price falls and geopolitical uncertainties, it always serves as the most common go-to shelter currency. The American national economy is strong and stable anyways, and Fed’s interest-rate increases are only adding to it. In such scenario, the weakening of the dollar is no a likely case… We need cash so we can buy shares if – according to our predictions – the decline of the market is too severe.
As for the expected development of Dow and S&P: in 2016 – according to our predictions – these indexes will fall by 20-30 percent. Based on historical analogies and technical analyses, the ‘bear’ keeps dominating the markets, and it will be interrupted by short-lived, so-called bear market rallies.
Personally, I think we are already in the weakening ‘bear’ market.
Would a democratic or a republican president be advantageous for the market in the coming years?
Share markets usually get stronger in the year of a democratic president taking up duties. A republican president, however, massively improves the position of the dollar. In the second and third year, the tide usually turns. This is the historical pattern…
What do your instinct, knowledge and experience tell you? Is the president of America going to be democratic or republican?
Hillary Clinton’s chances are far better, than any other republican’s. A significant factor behind it is that the majority of women are leaning towards Hillary: however, more women will vote in November, than men. Between the republican nominee and Mrs. Clinton is indeed going to be a close competition. All in all, I think, Hillary Clinton will be elected as the next president of the country.
Original date of Hungarian publication: January 18, 2016