Published August 14, 2017
For months in this column, we have urged our readers to ignore the headlines and focus instead on market fundamentals. That strategy has paid off. The White House hi-jinx have continued to make the news, but the market has moved up in an almost steady manner.
U.S. equities are up 11.59 percent from the beginning of this year through July 31, 2017, continuing the long recovery since the Great Recession. On March 6, 2009, the Dow struck its low of 6,443. It has now more than tripled in value to over 22,000, more than making up the loss. Patient investors benefited.
Three years ago we moved our assets into U.S. equities because “they were the best house on a bad block.” U.S. stocks have been the best performing asset class in the world in those three years.
As of this writing, current earnings reports show that more than 70 percent of S&P 500 companies report having beaten their estimated earnings. Their earnings have been up a robust 11 percent, with earnings now on track to grow by double digits for two quarters in a row. So, although the market is fully […]
Published June 12, 2017
Headlines last month were dominated by the White House with various scandals, investigations and withdrawal from the Paris climate accord. With the penchant for this White House to generate distracting news, we can expect there will be more headlines to digest.
In the past I have said that it is better to look at market fundamentals than headlines. Indeed the headlines could give you indigestion, but the market has continued its march to new highs. Other than the market, what’s up?
Market participants still believe in the Trump agenda of less regulation and a pro-business approach. This includes tax reform/cuts and a revision of Obamacare. However, the prospects for this agenda grow dimmer and dimmer, and in some cases may not happen. Still the market marches on. Gross domestic product is barely growing, at less than 2 percent annually, and shows signs of faltering. The Federal Reserve promises several rate increases, perhaps as many as three, this year; yet market interest rates barely budge, with the 10-year bond about where it was when the Fed announced its previous rate increase. The dollar strengthened on the Trump election and the likelihood […]
Published May 5, 2017
Equity markets have reached noteworthy new highs year to date. The Dow was up 5.96 percent, the S&P up 6.7 percent and the NASDAQ an unusually strong 12.34 percent through April 28.
The highs came with rising volume and lowered volatility. The highs came in spite of weak GDP numbers and personal consumption numbers. The GDP for the first quarter of the year increased an anemic 0.7 percent, and personal consumption was the weakest in seven years.
Additional burdens on the market were the threat of rising interest rates and storm clouds regarding North Korea. Also, U.S. factory activity eased in April, leaving growth on solid ground, but slowing the growth trajectory. Optimism about the Trump agenda had buoyed the markets after the election, but that optimism found limits as parts of the agenda failed or were stalled.
The rising markets reflected an increased appetite for risk, which in turn is now supporting consumer spending and investment. Business investment is expected, by some analysts, to increase 5 percent over the next two years. Personal consumption is expected to increase 2 percent over the same time frame. Core inflation is expected to reach the Federal […]
Published April 7, 2017
Amid the longest bull market rally since 1928, there has been much concern about risk and how far the rally can go. The slow, grinding increase has been universally doubted by investors, and yet the rally has continued with occasional pauses and setbacks. Should investors stay in the market and experience the inevitable pullback, or get out and miss the rally?
Another possibility is that the market could pause and let the fundamentals catch up. Currently, the market’s price-earnings (P/E) ratio is about 22 times earnings versus its five-year average of 18.2. Such a lofty P/E points to a correction, but if earnings were to increase, the P/E would go down. Earnings can increase if the economy is strong and profits rise. Right now, optimism prevails.
However, there is a sharp divide among Democrats and Republicans in outlook. A recent survey by the University of Michigan showed that respondents who identified as Democrat expect an imminent recession, a higher unemployment rate, lower income gains and faster inflation. Conversely, Republicans expect strong growth in incomes and job prospects, coupled with lower inflation.
Another catalyst for a market updraft would be a tax […]
Published March 13, 2017
That question in the headline is one that I have been receiving from clients lately. From what I read and see, the stock market’s future is on a lot of people’s minds, and with good reason.
First of all, the market has a history of crashing from time to time – often without warning, like the time Alan Greenspan 72 days into his term as Federal Reserve chairman unexpectedly raised interest rates by a quarter point in October 1987. The market dropped 22.6 percent in one day and dropped more in ensuing trading sessions. The dot-com bubble and the 2007-08 crash are other examples. These events have seared investors’ minds, and so they are wary, as they should be. In a series of slow-grinding moves, this market recovery has gone on for the second-longest time since 1928. Investors begin to wonder if it will continue. Should you be in the market as it climbs to new highs, or drop out of the market in anticipation of a drop? To be in the wrong place at the wrong time can be expensive.
Let’s look at what we know. The long-term trajectory […]
Published February 10, 2017
Way back in what now seems like the dark ages, the world experienced a financial crisis. The crisis slammed every portion of the globe, and it persisted. From governments down to the bottom of the socioeconomic structure, both assets and jobs were lost. At about this same time, the Middle East was imploding in revolution. These two events would coalesce at a later date in worldwide turmoil.
The recovery from the economic crisis was slow and uneven. Many people who lost their jobs remained unemployed. The percentage of the workforce actually working stayed low. People at the upper end of the economic spectrum found that their assets recovered, as the Federal Reserve kept interest rates low by historical standards and kept them low for a long time. People out of work noticed the disparity. Those with good jobs and their own homes did not notice so much.
As the Middle East disintegrated, with country after country attempting to throw off repressive dictatorships, vast numbers of refugees were created. Many of these refugees sought new lives in countries with stable governments in Europe and elsewhere. Some countries said they would accept […]