Price
Source: dshort blog, Monthly Moving Averages: May Month-End Update
From Jill Mislinski writing for the dshort blog at Advisor Perspectives:
All three S&P 500 MAs are signaling "invested" and two of five Ivy Portfolio ETFs — Vanguard Total Stock Market ETF (VTI) and PowerShares DB Commodity Index (DBC) — are signaling "invested."The one notable change to highlight in the Ivy Portfolio signals is the change for VEU going from "invested" to "cash." We'll be watching at the end of June to see if this is a one month whipsaw or if a new trend has started. Please note that the Ivy 12-month SMA (simple moving average) signal did not change to cash for VEU. IEF and VNQ remain in "cash" rather than "invested" at the end of May. IEF has signaled "cash" since the end of December and VNQ has indicated "cash" since the end of January.
Sentiment
Source: CNN Money Fear & Greed Index
Sentiment ended the month little changed from where it started the month of May. Sentiment data shows 3 of the 7 indicators that comprise the CNN Money Fear & Greed Index are either showing "Greed" or "Extreme Greed" with only one indicator, Market Momentum, showing "Extreme Fear." Will the S&P 500 need to reach new all-time highs for sentiment to read "Extreme Greed" again?
Valuation
For valuation analysis this month let's examine the U.S. Household Net Worth as a ratio of disposable income. I highlight the two figures below to illustrate the tremendous growth in asset prices, particularly since the end of the Great Recession, relative to disposable income. The first figure provided by David Rosenberg, Chief Economist and Strategist at Toronto-based Gluskin Sheff+Associates, plays up the meaning of this graph with "I'm rich" or "I'm poor" circled at the peaks and valleys created since the late 1990's. Currently we're feeling the richest we've ever felt relative to our disposable income since 1960. Please click on either of the figures below to enlarge.
Source: MarketWatch, David Rosenberg, Oliver Garret
The second figure below shows data from 1960 through Q4 2017, again showing that U.S. Household Net Worth as a ratio of disposable personal income has reached higher levels than the late 1990's and the peak created during the housing boom in 2006-2007.
Source: US Flow of Funds: US Household Wealth, Yardeni Research
Summary
As we enter June two asset classes (VTI, DBC) remain "invested" and three (VEU, VNQ, IEF) are signaling "cash" according to the Ivy Portfolio system. Sentiment is hanging around neutral and has become considerably more "greedy" since the beginning of April. Valuations remain elevated across multiple asset classes. Technology stocks rose considerably in the month of May, we'll watch to see if this momentum continues through June. For VEU we'll be watching to see if foreign stocks fall further or if investors following the Ivy Portfolio system are whipsawed back into foreign equities.
While foreign economies decouple from the United States, the U.S. economic expansion since June 2009 continues and has exceeded 106 months. This is the second longest economic expansion in U.S. history since 1945. The longest expansion reached 120 months from March 1991 to March 2001.
The middle of June has two potential market moving events. First, Trump and a team of U.S. and foreign dignitaries may meet with the North Koreans in Singapore on June 12. Second. the Federal Reserve meets on the twelfth and thirteenth. Current expectations anticipate the Fed will raise rates at this meeting. Let's end with this quote from American retired soccer player, coach, two-time Olympic gold medalist and FIFA Women's World Cup champion, Abby Wambach:
"If you’re not a leader on the bench, don’t call yourself a leader on the field. You’re either a leader everywhere or nowhere."As always, 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.--------------------------------------------------------
Here's what I've been reading recently:
- Regulating Emotions 3000 feet off the Ground (Miller Value Partners)
- How to Choose the Right Budget System (NerdWallet)
- Opinion: Your midlife malaise is totally normal — and this simple strategy can keep it from turning into a crisis (MarketWatch)
- Warren Buffett's Advice On How To Raise Well-Adjusted Heirs (Forbes)
- 9 compelling reasons to consider a Roth IRA (Fidelity Viewpoints)
- Biggest U.S. Banks Cut Municipal-Bond Holdings as Tax Rates Fall (Bloomberg)
