Stock Market Outlook: More of the Same in November?

The market has bucked tradition this year, with the Dow reaching record highs. Tax reform and a potential change in Fed leadership could be factors soon, though.
Investing, Investing Data, Investing Strategy, Investments

When it comes time to carve the turkey (or Tofurky) on Thanksgiving, many investors will be especially grateful for this year’s stock market.

Investing doesn’t normally seem this easy and yet, stock prices have basically moved only one direction this year: up. Even a decline in excess of 0.5%, a veritable pipsqueak of a movement for the Standard & Poor’s 500 Index, has become a rarity. Not since 1995 has the gauge failed to decline at least this much for so long (more than 30 days and counting).

Investors aren’t exactly complaining. A stock market that’s bucking tradition has delivered returns of about 14%, and there doesn’t seem to be much reason to believe the good times will end come November. Here’s what to watch in the month ahead — and beyond.

What could bring November rain?

While bulls have delighted in the market’s performance, bears have been waiting — and wishing — for something to cause stock prices to fall. For now, the forecast remains favorable for a continued market rally, says Tom Cahill, managing partner of Beaumont Financial Partners. That’s because solid corporate profit and economic reports support higher stock prices ahead, even as valuations (what investors are willing to pay for earnings) are at record levels, he adds.

“It’s amazing how resilient the market has been this year,” Cahill says. “But we know there’s going to be a day of reckoning at some point.”

Predicting when a significant selloff will happen, and what will trigger it, has become all but a guessing game.

» New to investing? See NerdWallet’s guide on how to invest money.

Geopolitical tensions, like those surrounding North Korea’s nuclear program, are a perpetual threat to markets. Meanwhile, the jobs report for October — set to be released by the Bureau of Labor Statistics on Nov. 3 — may warrant scrutiny after storms were blamed for the loss in U.S. jobs in September, the first such decline in seven years.

We know there’s going to be a day of reckoning at some point.

Tom Cahill, managing partner of Beaumont Financial Partners

A big wild card for the market could come from Washington, Cahill says. Professional investors have been able to justify the market’s rally, in part, because they’ve been banking on tax reform that will benefit public companies. While there’s been minor progress on that front so far, if President Donald Trump’s campaign promise of tax reform fails, “that’s definitely going to shake up the market,” he adds.

Fed back in focus

Not so long ago, investors were hanging on every word from the Federal Reserve. As central bankers have delivered on their promise to raise interest rates — the Fed has delivered two such hikes this year and a third is widely expected when the Federal Open Market Committee convenes in December — such obsession has diminished.

But the Fed will be back in focus in a big way if Trump decides to shake up its leadership. Janet Yellen, the current Fed chief, is approaching the end of her four-year term in February 2018, and Trump has yet to announce if he plans to replace her.

The Fed will be back in focus in a big way if Trump decides to shake up its leadership.

Investors already have been speculating about possible replacements and analyzing how their philosophies compare with the Fed’s course of action in recent years, says Quincy Krosby, chief market strategist for Prudential Financial.

» Dig deeper: Why investors care about the Fed (and interest rates)

“This has the potential to unnerve the market, at least initially,” Krosby says of a possible change in Fed leadership.

As for when the announcement will come? Stay tuned. Trump said Oct. 23 that he’s “very, very close” to making a decision.

Six-month outlook for stock market

While the events of any one month can be interesting — and potentially significant — if you’re invested in the market for the long haul, you shouldn’t stress about short-term disruptions. After all, people have been unsuccessfully predicting a massive selloff for months now, and trying to time the market is never a prudent strategy.

In the short term, Wall Street strategists are forecasting the S&P 500 will end 2017 higher than it began. The average estimate of these forecasters — at 2,524, according to figures compiled by Bloomberg News — would mean a still robust 13% gain for the year.

People have been unsuccessfully predicting a massive selloff for months now, and trying to time the market is never prudent.

Looking further ahead, more than one-third of retail investors expect stock prices to be higher in six months than their current levels, according to a weekly survey by the American Association of Individual Investors. Finally, the six-month period after Halloween historically is good for stocks: In the 50 years prior to 2013, the S&P 500 returned an average of 6.6% in this period.

Buying into the market when stock prices already are high can be intimidating. But that shouldn’t deter you from participating in what has proved to be a fantastic long-term investment. The market undoubtedly will go up and down in the course of your investing timeline, but one way to minimize the risk of a big shock to your portfolio is to ensure you’ve spread your money across a variety of assets. (Read more about how diversification can reduce your investing risk.)

Finally, if you can maintain your investing discipline, short-term dips in the market can actually be advantageous for long-term investors. Dollar-cost averaging, which involves regularly adding money to your investments to help smooth out your purchase price, ensures you won’t dump all your money in when stock prices are at a peak. (Intrigued? Learn more about how dollar-cost averaging works and when to use it.)

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