Get Ready to Harvest | The Investors Edge
By John Stewart, chief investment officer at Farmers Trust Co.
Week in Review: The Teflon Market
Seemingly nothing can slow down this stock market.
There has been no shortage of things to cause concern – wars, hurricanes, warnings of economic instability, nosebleed valuations, and likely the most contentious and too close to call election in modern history are just a few of the things for investors to worry about.
And yet the market just keeps marching higher with little interruption.
So why aren’t stocks more concerned – well, for one, it is a well-known saying on Wall Street that stocks love to climb a wall of worry.
Markets love to confuse investors, which when you think about it, it makes sense – if investing were easy, everyone would be a multi-millionaire.
As markets move higher, more worriers become convinced that they’re missing out, and they decide to throw caution to the wind, bidding stock prices ever higher.
When the last bear has been converted to a bull and everyone is fully invested, that’s when the market becomes most vulnerable to a downside surprise.
A famous quote by legendary investor Sir John Templeton sums it all up – “Bull markets are born on PESSIMISM, grow on SKEPTICISM, mature on OPTIMISM and die on EUPHORIA.”
Featured Insight: Get Ready to Harvest
For farmers, fall is the time for harvesting their crops. For investors, the fourth quarter is a good time to harvest tax losses.
Even with another strong year for stocks, it is likely a well-diversified portfolio will have at least a couple of losers that can be sold to realize losses for tax purposes.
Most people are reluctant to take losses, but you have to remember that you don’t have to make your money back on the same stock that you lost it on.
For one, you can sell one company at a loss while buying a similar company for future upside – for example, if you have a loss on Pepsi, you could sell it while at the same time buying an equal sized position in Coke.
This is a strategy that can be especially helpful if you’re looking to lock in some gains on stocks that have done well and you need a way to offset the tax consequences.
Looking Ahead: Another Earnings Season and the Election Loom
Another quarter has passed and companies are now starting to report their earnings numbers for the past three months.
By all accounts, the numbers are expected to be positive, but expectations have been falling. Five percent earnings growth was expected at the beginning of last quarter and now the consensus of analysts is looking for just one-half of one percent growth.
It’s important to keep in mind, however, that they usually set the bar low enough for companies to beat expectations – so at least 2-3% growth is likely.
As always, more important will be the guidance provided for the next couple of quarters’ earnings estimates. This will all be happening as the election rises on the list of potential market catalysts.
Copyright 2024 The Business Journal, Youngstown, Ohio.
