The Current State of Things

David B. Armstrong, CFA Weekly Market Commentary

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I want to write something, but I keep staring at my screen.  It happens.  It happens a lot more since I’ve stopped writing a “Weekly Market Summary.”  I’ve graduated from that.  It was great when I started writing because I had a topic ready for every weekend. But when looking back it’s all blah blah blah.

No one cared. I started writing more opinion and the metrics changed.  Readership went way up, and I started getting emails of encouragement or simple compliments like “loved the blog.”

I still like writing weekly observations though, and today as I scrolled through the most recent JP Morgan Guide to the Market slides, I just started thinking…

Index at Inflection Points

It’s interesting how people become fearful of the market after such a long run up. I get a lot more emails about the pitfalls ahead than emails saying everything is okay.  Maybe it’s because the people who think everything is okay aren’t worried, or already know that there will be ups and downs as an investor.

Above, I see a huge run up.  But as of the 21st, the forward P/E of the S&P 500 is 16.8x…not much higher than October of 2007 and way under the March 2000 reading of 27.2x.

The yields on the 10-years are interesting, too.  A yield of 6.2% in March of 2000 means not many people wanted to own bonds…they were too busy chasing bubble stocks like Pets.com. Today? 2.1%…so a lot of people are buying them.

Anyone thinking the market is going to crash has to counter argue the forward P/E and the 10-year.  I’m not saying they can’t counter argue it, I’m just saying they have to…Logically.

So, how far out of whack is the forward P/E of the S&P 500? See below.

Valuation Measures

It’s riding the 25-year average.  See above…Nothing overly crazy there. In fact, when I hear long-term investors sitting on cash agonize over timing of investing, I point this out.  Especially given the fixed income rates and current dividend yields (see previous chart).

Don’t forget the “Shit Happens” chart below. On average, the S&P 500 drops 13.9% every calendar year, yet 29 of the past 39 years have an end-of-year positive outcome.

Annual and Intra-Year Returns

With the exception of recessions in the 40’s and 50’s, recessions usually require a few things to be happening: commodity spikes, an aggressive Fed raising rates and extreme valuations.

Recessions and Bear Markets

Keep your eye on the MONCON which is STILL at 5…unlike the press, which sometimes will hype news and amplify speculation to make you think it should be at 2.

Keep looking forward,

Dave 

MONCON_Recession_5

 

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All indexes referenced are unmanaged and cannot be invested into directly. The economic forecasts set forth may not develop as predicted. Due to various factors, including changing market conditions and/or applicable laws, the content may no longer be reflective of current opinions or positions. Moreover, you should not assume that any discussion or information contained in this blog serves as the receipt of, or as a substitute for, personalized investment advice from Monument Wealth Management. To the extent that a reader has any questions regarding the applicability of any specific issue discussed above to his/her individual situation, he/she is encouraged to consult with the professional advisor of his/her choosing. Monument Wealth Management is neither a law firm nor a certified public accounting firm and no portion of the blog content should be construed as legal or accounting advice.

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About the Author
David B. Armstrong, CFA

David B. Armstrong, CFA

David B. Armstrong, CFA, is a President and Co-Founder of Monument Wealth Management. Along with his role as the firm’s chief investment strategist and portfolio manager, Armstrong is viewed as an industry leader in several areas including innovative practice management, discretionary asset management, digital marketing and social media. Dave is the writer of Monument Wealth Management's weekly "Off the Wall" Financial Blog and Market Commentary, and is frequently sought after by journalists and event coordinators. Visit his full biography here.

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