New Highs, But Are We Getting Anywhere?

Once again the markets have made new highs and the media seems to forget that new highs is what the market is supposed to do. Citing the “remarkable” rally since February of nearly 20% (the yellow arrow on the bottom right to 8/16/2016 on the Chart below), the market could be showing signs of topping out. However, that is not the way to view the market.

The “rally” since February is not a bull market rally– it has only been a recovery from a selloff or bear market that started in May of last year as seen in the first arrow below.

sp500 -8162016

Source: www.freestockcharts.com

S&P 500 Index is a capitalization weighted index of 500 stocks representing all

major domestic industry groups. It is not possible to directly invest in any index.

Between the arrows the S&P 500 dropped about 15%. It then took until 7/13/2016 just to regain its prior high. Looking at the market this way we have had a very unremarkable market since May of last year – a paltry 2.3% return in 15 months. Bull markets start when the average breaks above the most recent high, and stays above that level. This paints a very different perspective of the markets new record highs.

Normally, I’d say this has been a very healthy consolidation period (a sideways market) and we should be ready to launch into a true bull market. The problem is that S&P 500 earnings have been declining, not growing over this period.  When looking at market value as a function of corporate earnings, the market has indeed become more expensive even as it has really gone nowhere on a net basis.

Bottom Line

Whether the market is overvalued or undervalued is not just a function of “record highs”. Market value is a function of corporate earnings. While the overall outlook for economic growth is not particularly promising, there are a few individual companies are managing to buck the trend. According to www.zacks.com 2nd quarter earnings and revenues were negative – but less so then 1st quarter 2016. Slightly promising, but not exciting.

While we are maintaining a fairly high cash position in our growth portfolios we continue to look for undervalued opportunities. Our dividend based strategies remain mostly invested, as we still believe any market rally will be short lived, and collecting dividends in a sideways market is a solid strategy.

 

Mr. DeShurko is a registered representative of Ceros Financial Services, Inc. (Member FINRA/SIPC).  Ceros is not affiliated with 401 Advisor.  The views expressed are those of Mr. DeShurko and do not necessarily reflect those of Ceros Financial Services, Inc., its employees or affiliates.

Past performance does not guarantee future results.  There is no guarantee that any investment or strategy will generate a profit or prevent a loss. 

Is the Market Overvalued?

Every time the market rallies for a few days the talking heads start talking about record highs…as if that is a bad thing! While “record highs” really is an irrelevant valuation metric, there are many standard ways to evaluate a stock’s or index’s fair value. One of the most common metrics is known as the Price to Earnings ratio or P/E.

Below is an article I recently published at http://www.HorsesMouth.com.

PE Article

For the entire article, click below:

Horsesmouth _ PE Valuation

Brexit…Congratulations!

I am unabashedly biased. I have thought since the beginning that 70% of the entire ECB concept was flawed…and 99.9% of the actual implementation. Here in the U. S. those of us that live in fly-over country bristle enough when Americans and mostly elected  Americans, in America (Washington DC), feel the need to control our lives. Imagine instead if all of Washington’s rules and regulations instead were handed down from a non-elected group of non-Americans, residing in Quebec or Mexico City. That’s the ECB.

For investors in the U. S. this really is a non event…except it probably strikes a little more fear in the hearts of the anti-Trump group, that his rhetoric my be hitting home in a similar fashion as Brexit was supported by the non-elite, non-financial, -non-traditional politicians in England.

Short term the markets may be more volatile. This is a case of volatility literally feeding volatility. Many trading algorithms are partly based on trading on volatility. The more volatile the market the more the algorithms are programmed to sell. Which triggers more selling. It has been heartening to see fairly stable markets today. 3% drop isn’t fun, but it has happened for far less dramatic events in the past.

At 401 Advisor, LLC we are mostly invested, but for new clients or new monies that have transferred in recently, we used this morning as a buying opportunity. I’d actually hoped for a bigger “opportunity”, but we picked up a few shares cheaper than they were yesterday.

I wrote for article on investing during volatile times that appeared Wednesday at Kiplinger’s web site.

Kiplinger Logo

Kiplinger Long Term Trends

New Article on Risk Questionnaires

The media, fund companies, and 401(k) provider’s can focus too much attention on short term risk. Despite major bear markets from the Great Depression to the Great Recession a portfolio of diversified stocks actually carry less risk than alternatives like bonds and t-bills over long periods of time. How much income are you going to miss out on in retirement by allocating your portfolio based on short term volatility instead of long term performance? For more, the entire article can be found here at http://www.usnews.com

 

US News Risk Questionnaire

New Post on Gold

baseball diamond

With the recent market volatility, political craziness and usual global worries the gold” bugs” have come out in force. Last week I published the following article on Kiplinger’s  website.

 

Click <HERE>for the full article

Kiplinger Gold

AAPL Outlook

If you’re a client of 401 Advisor, LLC you likely hold Apple, Inc. (AAPL) stock in your portfolio. While the stock has been beaten up this year, the company has many redeeming qualities. For my take, I have posted the following article  for my column at www.usnews.com “The Smarter Investor”

The article has also been picked up by Yahoo Finance, here.

US News Apple

Article On NEW IRA Advisor Rules

US News - Fiduciary 04202016

To read more on the new fiduciary standard The entire article can be read at The U S News & World Report, The Smarter Investor Blog and was also published  on Yahoo! News

401 Advisor, LLC has been operating under a Fiduciary standard since the business was formed in 2004. In short, it’s about time the rest of the industry has to disclose fees and conflicts of interests. Hard to understand why companies like UBS, Merrill Lynch, LPL and Raymond Jame to name a few, fought so hard to prevent the ruling.

 

Dividend Investing

US News Logo

 

401 Advisor, LLC specializes in building client portfolios using dividend paying stocks due to their long term history of providing superior returns over non dividend payers. I recently contributed to an article posted by U S News on their web site. The article highlights warning signs that a stock may be cutting their dividend in the future.

New Article on 529 Plans

I just had a new article on the draw backs of 529 Plans published at Crains Wealth website: http://www.crainswealth.com/article/20150603/WEALTH/150609965/money-milestones-downsides-of-a-529-college-savings-plan

While 529 Plans do offer some tax advantages, they do come with restrictions. For some families a portfolio of good old fashioned high quality stocks might offer a better alternative.

Big Down Day Today – But Still in “Normal” Range

Blaring headline from the business news talking head, “Market is now down more than any day since May 5th!!!!!” Geesh, that’s only 3 weeks ago!  In fact, between then and now we enjoyed the third-longest streak of gains and losses of less than 0.20%, in other words extremely low volatility. With the summer doldrums already here, what does that mean for the stock market? Well, all other periods on the list happened in the middle of bull markets. In other words, today means nothing by itself. Greece is making noise that it will not put up with more “austerity” imposed by the ECB. That is enough to cause some jitters in the market. We’ll see what they say by the end of the week. Our strategy is unchanged – be invested, be cautious.


bill@401advisor.com • 937.434.1790

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Charles H. Dow Award Winner 2008. The papers honored with this award have represented the richness and depth of technical analysis.

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