After what has been a stellar 2013 for stocks, many investors are now wondering if there are any catalysts that can push the market even higher in 2014. But Michael Hanson of Fisher Investments’ MarketMinder says catalysts are not a requirement for market gains.
“In times of broad market skepticism and even mild optimism, investors (amateur and professionals alike, sometimes desperately) look for catalysts to drive prices higher,” writes Hanson. “The mindset is: The market can’t climb unless we get some new event to propel it. Otherwise, the thing deflates like a week-old party balloon. It’s only QE that’s propping markets up to begin with!”
But bull markets don’t need catalysts, Hanson says. In fact, he says, perceived catalysts that are forced on the market, like government stimulus, often just get in the way of natural cyclical forces, and create unintended consequences. “2014 won’t be a year to look for catalysts — it will be a year to watch markets flex their muscles as bad ideas like QE and sweeping financial re-regulation wane,” he says. “Ken Fisher taught us at MarketMinder years ago that it’s not just about whether folks are ‘optimistic.’ It’s all about relative expectations — are investors more optimistic than reality? The continued search for catalyst myths like QE and fear of so-called ‘tapering’ here in the US argue against too-high optimism today. When people aren’t looking for catalysts any longer, and believe the markets will continue riding high in spite of truly bad and worsening fundamentals — which don’t currently exist — then the cycle change is nigh.”
Validea’s Ken Fisher-inspired portfolio is up more than 14% annualized since its mid-2003 inception vs. less than 6% for the S&P 500. Check out its holdings here.