Can You Really Time the Market?

A measly 2%.

That’s how much the average investor will make per year on their money in the stock market.

But that’s nowhere near what the stock market is capable of returning.

For instance, since its inception in 1957, the S&P 500 has averaged gains of nearly 11% a year. And, since 2009, it has returned roughly 15% a year.

So how come the average investor only makes 2%?

See, the average investor tends to buy stocks when they are expensive and sell them when they are cheap.

But how do you know if the market is cheap or expensive? Can you time it?

In these Fed-driven markets, these questions are more important than ever.

So in a two-part series today and tomorrow, I will explore them in greater detail. And I’ll give you four indicators every investor should have in their toolbox.

Don’t Fight the Fed?

“Don’t fight the Fed” is a popular mantra. It suggests you should align your choices with the actions of the Federal Reserve.

The mantra goes like this…

When the Fed is showering the economy with cheap money, it makes little sense to bet against the market’s bullish trend.

But when the Fed switches gears to fighting inflation, not fighting the Fed means canceling your proverbial bets.

But does the data suggest you can use this knowledge for trading? Let’s see…

The table above breaks down the Fed’s first four rate hikes this year.

As you can see, the Fed raised rates on March 16, May 5, June 16, and July 27. In all four cases, the stock market went up.

The markets even shrugged off the Fed’s third interest rate increase on June 16.

That was the day the Fed raised rates by 0.75% for the first time this year. It was the biggest rate hike in almost three decades. And still the stock market went up 1.5%.

It seems like a pattern is forming. So far so good.

But take a look at this next table. It shows the market’s reaction to the Fed’s last two rate hikes…

Those rate hikes happened on September 21 and November 2. And for the first time this year, the markets had a negative reaction.

Stocks fell 1.7% and 2.5%, respectively.

What This Means for Your Money

The Fed’s next interest rate decision will take place on December 14.

That’s when we’ll know if the Fed is staying hawkish through the end of the year… Or if it’s kicking off the three-stage pivot I’ve been writing about.

As I write, the market is pricing in nearly 80% odds of just a half-point rate increase.

So, should you buy or sell? Here’s my honest answer…

If the Fed’s actions are your only guiding star, you should probably do neither.

That’s because – as my little exercise above shows – you can’t predict the market based on what the Fed does in the short term. At least not without advanced tools and know-how.

It will move in unpredictable ways… much like the ball on a casino roulette.

For example, when the stock market went up after a rate increase, sometimes it gave up all those gains the next day.

The market giveth, the market taketh.

But don’t despair.

The good news is that there are other ways to look at the market as a whole and see where it might go next.

Just keep in mind they may require a longer-term investing outlook.

Unfortunately, most investors don’t have access to the tools that can help them decide if the stock market is undervalued or overvalued.

You might need to compile complex data… Some require special skills to navigate… And others are just not that useful.

But there are four metrics you can look at to help you make better decisions.

These four metrics should be in every investor’s toolbox. And tomorrow, I’ll do a deep dive into each one. So keep an eye on your inbox for that.

Happy investing, and I’ll be in touch again soon.

Regards,

Nomi Prins
Editor, Inside Wall Street with Nomi Prins

P.S. Insiders are gearing up for one of the biggest wealth transfers in history. Everybody is positioning themselves to profit from the coming revolution in how the world creates, consumes, and stores energy.

$755 billion flowed into this energy shift this year. The recent energy crisis has lit a fire under this shift. And Forbes predicts that number will surge to $130 trillion.

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To find out all about it – and a way you can get in on the action – just watch this presentation I recorded recently.