Stocks continued to be very volatile over the past few weeks, which comes as no surprise to me as I told our subscribers in the November edition of Small-Cap Profit Confidential that I expected stock prices to be volatile during the ensuing weeks.
The outlook for the U.S. economy, as well as other major economies around the world, has continued to be negative.
Readings on numerous economic indicators suggesting that the pace of economic growth for the United States, the Eurozone, China, India and Brazil will continue to slow and that Japan’s economy will continue to contract during the months ahead.
Separately, a great deal of uncertainty exists regarding trade relations between the United States and China, as well as measures that the new Democrat-controlled U.S. House of Representatives, which takes effect on January 3, might implement to impede President Trump’s economic agenda.
In spite of the negative factors and developments mentioned above, and the fact that five of my currently recommended stocks are down considerably from the prices at which I recommended them, our model portfolio has outperformed the S&P 500 Total Return Index since December 6.
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That outperformance is the result, primarily, of my investment allocation recommendations to cash and to short a well-known small-cap index.
The fact that the value of our model portfolio has appreciated, albeit modestly, since the inception of that portfolio on April 13 of this year illustrates the importance of proper investment allocation.
During the same period, the Russell 2000 Index has declined by 8%.
Stocks look weak, for now
I therefore encourage subscribers to follow not only my specific stock recommendations but to also adhere to my recommended investment allocations. By doing so, I’m confident that you’ll minimize your overall losses during bear markets and maximize your returns during bull markets.
I’m also confident that over a complete market cycle, meaning from the beginning of one bull (or bear) market to the beginning of another bull (or bear) market, that you’ll substantially outperform the major stock market indices and the vast majority, if not all, stock mutual funds.
In regard to the near-term future outlook for stocks, my research indicates that stock prices in general will continue to trend lower over the next few months.
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However, that same research indicates that my currently recommended stocks that have pulled back considerably have likely already bottomed, or our very near a bottom.
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