Investor Psychology Improves & Monetary Liquidity Weakens

We have some very important news this morning!  We've had a "double change" in our evolving Asset Allocation Model.  Our Psychology Composite has dropped to a more positive level of P3 (from P4) and our Monetary Composite has dipped a little from its most bullish level of M1 to M2. 
 
 
What does this shift mean?  It gets back to the same old discipline of looking at what history tells us it means.  Looking at past instances in which our model saw Psychology at P3, Monetary at M2, and Valuation at V1, in the next 12 months, the S&P 500 experienced a median return of about 19.86%, with 86.7% of returns positive.  Also, for the same time period, the minimum return for the S&P 500 has been -2.61%.
 
If you don't like those odds, you should not be investing in stocks...or really anything.  You should bury that stash of cash in your back yard.
 
So today, four years after the stock market crash in the Fall of 2008, we see that the S&P 500 has moved up - despite three corrections in which the gurus painted as the end times - over 100%.  Yet, the general opinion for most of that time has been very skeptical.
 
However, we continue to follow our Asset Allocation Model, and despite the short-term cautiousness we've mentioned several times recently, our long-term outlook remains very positive.
 
Don Hays
 
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