This Week’s Market is a Bunch of Bull
The general consensus is that equities are the place to be right now. That’s causing a lot of people to wonder if it’s time to get out of the market. We wrote a lot about this in last week’s blog, so be sure to check that out for some of the details. However, I’ll draw your attention to the graphic that I came across (apologies for non-attribution, it was without a source) that shows the commonly referred to stages of investor emotion.
We think we are transitioning from Relief to Optimism. As Jeffrey Kleintop from our LPL Financial Research Department wrote last week, if the Bull Market ended today (yes, this IS a Bull Market) it would end with the S&P 500 at the lowest price to earning multiple at the end of a bull run since World War II. We are currently at 14.5 times trailing earnings, while the multiple at the 2000 peak was 28.2, and was 16.8 in 2007. Also from the chart, it’s clear to see that Bull Markets begin at Despair, grow on the back of Hope and Relief and ultimately die of Euphoria. A 14.5 multiple is hardly euphoric.
Here’s a recap of how the market did last week.
Sequestration
This is just more political gamesmanship. Right now, the only things that I see getting done are back and forth press conferences. Do these politicians really think they are influencing any of the public’s opinions? They are all just awful – all of them. When I read that a politician said, “It is almost a false argument to say we have a spending problem,” I realized that a recent tweet on the subject (slightly modified for tender ears) from Josh Brown was correct. “And now…Washington is about to waterboard the economic recovery.”
Thankfully, the market does not seem to be signaling that it is worried about this in the short run, mostly because most people recognize that this is not a “cliff” situation and that there is plenty of runway to compromise past the deadline before cuts really bite. Stay tuned.
If you need a little levity – please enjoy the cartoon below that someone sent me over the weekend. I liked it. You should too.
Back to the Bull Market – while the Dow Jones Industrial Average (DJIA) and the S&P 500 hit their Bull Market highs a few weeks ago, it was not until this week that the NASDAQ hit it’s high. It’s good to see that happen.
Last week saw some economic data come out with initial jobless claims and the ISM Services Index. The former came in weaker than expected (meaning more people filed for initial unemployment benefits) for the second week in a row. The 4 week moving average is still at a post-recession low, but that won’t keep up if claims don’t drop back down. The ISM Services report was better than expected, but not earth shattering.
Finally – corporate earnings. Over 1000 companies have reported and the percentage of companies beating their revenue and earnings expectations is a huge improvement over the previous two quarters. So far, 63.1% have beaten revenues and 64.2% have beaten earnings (according to Bespoke Investment Group). The market has reacted to these good numbers and that’s a huge contributor to why the market has done so well so far in 2013.
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The opinions voiced in this material are for general information only and are not intended to provide specific advice or recommendations for any individual. To determine which investment(s) may be appropriate for you, consult your financial advisor prior to investing. All performance referenced is historical and is no guarantee of future results. All indices are unmanaged and cannot be invested into directly. Stock investing involves risk including loss of principal. The Dow Jones Industrial Average is comprised of 30 stocks that are major factors in their industries, and widely held by individuals and institutional investors. The Standard & Poor’s 500 Stock Index (S&P 500) is an unmanaged capitalization weighted index of 500 stocks designed to measure performance of the broad domestic economy through changes in the aggregate market value of 500 stocks representing all major industries. The NASDAQ Composite Index measures all domestic and non-U.S. based common stocks listed on The NASDAQ Stock Market. The market value, the last sale price multiplied by total shares outstanding, is calculated throughout the trading day, and is related to the total value of the Index. The Russell 2000 Small Stock Index is an unmanaged index generally representative of the 2000 smallest companies in the Russell 3000 Index. The Russell 2000 is an unmanaged index generally comprised of companies with lower price-to-book ratios and lower forecasted growth values. The 2, 10 and 30 year Treasury is simply the yield at the close of the day.
(1) West Texas Intermediate crude spot price is as of end of week.
(2) London Bullion Market Association; gold fixing pricing at 3 p.m. London time.
David B. Armstrong, CFA
President & Co-Founder
Dave got into the industry when he discovered his passion for finance in his mid-20’s. He’s a combat veteran and served as an officer in the United States Marines Corps on both active duty and in the reserves, retiring at the rank of Lieutenant Colonel. While serving on active duty, Dave was unable to spend money on deployments, so he became a self-taught investor. Along with a few bucks cash as a bouncer, his investing performance grew to be good....
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