Wednesday, March 1, 2017

March Market Update - Will the Melt Up Continue? Time to Rebalance!

The melt up in the US Markets continues into March. The bull market will hit its 8th anniversary on March 9, 2017. Please read Mark DeCambre's article for MarketWatch titled, "Stock market roars to start March—how equities perform in the month." While the market is accelerating to the upside, so is economic data for the United States. Let's examine price, sentiment, and valuation as we begin March.

Price
Price action continues to tell investors to stay in stocks and avoid bonds. When we look at Meb Faber's timing model it reveals that investors should be in US (VTI) and foreign stocks (VEU), real estate (VNQ), and commodities (DBC). The only asset class not above its 10 month simple moving average is bonds as represented by the exchange traded fund, IEF. Price action also shows that the market has gone another month without a 5% correction. U.S. stocks haven't dropped more than 10 percent from a recent high since early 2016. Stocks last retreated close to 5 percent following BREXIT in June of last year. Lastly, moving average indicators are only one small piece of the tactical investing puzzle. Please don't use it as your only decision when making changes to your portfolio.

Sentiment
The CNN Money Fear & Greed Index shifted from 50 last month to 78 as we start March. It is challenging to add money to a market which is overly bullish. Sentiment indicators suggest long term investors will probably be rewarded by dollar cost averaging into stocks rather than adding a large investment all at once.

Valuation

Source: D Short Blog at Advisor Perspectives

Doug and Jill at the D Short blog have shown us through their charts that: The history of market valuations suggests a cautious perspective on the long term prospects for this bull market.

Summary
At the end of January, I was thinking February could be uneventful, boy was I off the mark. The S&P 500 gained 3.7% in February bucking the historical trend of February being a dull month for the market. Over the completion of this current business cycle long term investors may look back at today's expensive market and wish they had kept some cash out of the market for when the next clouds of panic selling rain on the market. As we enter March please review this quote from Mark DeCambre's article:
"And strength tends to beget strength. When looking at periods in which the S&P 500 has posted positive months from November to February. During those periods, March has logged an average return of 2.28% and finished higher nearly 85% of time."
Lastly, please read this quote from a note from Savita Subramanian, head of U.S. equity and quantitative strategy at Bank of America Merrill Lynch:
"We are updating our models to reflect the increasing likelihood that we are entering a typical end-of-bull-market rally, where fundamentals take a back seat to sentiment and technicals."
March and April could really add fuel to the end-of-bull-market rally, let's look at price, sentiment and valuation again at the end of March. Wise investing my friends.

Please consult a qualified financial advisor before making any investment decisions. This blog is for educational purposes only and does NOT constitute individual investment advice.

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