Monday, August 20, 2012

Stock Market: History doesn`t repeat itself

History doesn`t repeat itself. Those who believed otherwise are getting now punished by the recent stock market rally which started in the first days of June (

Last April many so called pundits wrote "Sell in May and go away". They claimed that the stock market follows a historical pattern which means that stock prices reach a temporary peak in April and then is dropping through autumn.  Those who followed this drivel sold their stocks way to cheap and have been missing the recent rally.

I wrote in my post from April 30th (drivebycuriosity) that following the "Sell in May" call would be a mistake and stated 6 arguments against selling automatically in a certain calendar month. The recent rally proves again that the stock market doesn`t follow a script and isn`t dictated by history.

The reason for the current rally is that many have been betting on a hard landing of the Chinese economy, the crash of the European economies and a new recession in the U.S. None of them happened yet, and the likelihood is low that they will happen in near future. Instead the global economy, especially the leader U.S.,  has been continuing its slow recovery process which started in spring 2009. 

As explained in my April post the sentiment was way too bad. Many who have been betting on a global depression got disappointed and are covering their bets now.
I reckon that the stock market is still undervalued because the majority of market participants is still too pessimistic and underinvested. I believe that China will avoid the hard landing and re-accelerate in the coming months, Europe will surprise on the positive side and the U.S. will continue their slow recovery. Therefore I reckon that the rally will continue in the coming months.

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