Price
Source: DSHORT Blog, Moving Averages: October Month-End Update
Jill Mislinsky summarizes the Ivy model as follows: "All five Ivy Portfolio ETFs — Vanguard Total Stock Market ETF (VTI), Vanguard FTSE All-World ex-US ETF (VEU), iShares Barclays 7-10 Year Treasury (IEF), and Vanguard REIT Index ETF (VNQ), and PowerShares DB Commodity Index (DBC) — are signaling "invested" [at the end of October]."
Sentiment
Source: CNN Money Fear and Greed Index
The CNN Money Fear & Greed Index started November with a reading of 72, down from 85 at the end of September. This indicates investors are still greedy as we start November. If sentiment is transitioning from optimism to euphoria, I'm going to be watching this indicator to see if it stays elevated during the holiday trading season.
Valuation
As I've written many times, an expensive market can often become more expensive. Do you explain the market advance with the logic of Bill Miller suggesting bull markets follow the path of least resistance and no other asset class remains a viable alternative to equities (for more read the September 2017 market update)? Do you appreciate Brian Reynolds, asset class strategist at Canaccord Genuity, assertion that the market continues to rise until the yield curve inverts thanks to pension funds flooding the market with capital (for more read the October 2017 market update)? Do you believe the rationale of the Fed Model theory that currently measures the stock market as a better asset class to invest in than bonds (for more read the August 2017 market update)? Valuations could also be justified by accelerating global growth. Sue Chang, writing for Marketwatch.com, highlighted this point in her November 6 article with the following chart showing the lack of countries currently experiencing a recession:
Source: Five important reasons why a stampede into stocks may be just getting started
Ms. Chang writes:
"Torsten Slok, chief international economist at Deutsche Bank Securities, this week also shared the chart above that showed that the number of countries in a recession at a historic low, a clear sign that global economy is booming."The last piece of information I'd like to share regarding valuation comes from a blog post by Ben Carlson at A Wealth of Common Sense investigating the question: What If You Only Bought at Below Average P/E Ratios? He writes "...the main takeaway is that it’s really difficult to time the market using historical valuations (although data-mining is always an option)."
Summary
Price action indicates investors should remain invested in multiple asset classes, sentiment readings continue to show investors -in aggregate- are greedy, and valuations remain elevated. LPL Research has recently published this blog post describing the two themes Ryan Detrick, their Senior Market Strategist, identified for this year: “2017 will likely be remembered for two things: a persistent bullish trend and historically low volatility.” Here is a look at corrections of 5% or greater in the S&P 500 since 2008 (notice the lack of corrections since early 2016):
Source: November 3, 2017 / Yardeni Research, Inc. Market Briefing: S&P 500 Bull & Bear Markets & Corrections
When the global economy is accelerating and earnings of companies in the S&P 500 are increasing it makes sense that stocks should be advancing. However, the markets are not all rainbows and unicorns. Please read Chris Kimble's blog post Divergences sending bearish message to stocks? His observation that market cap weighted indexes are outperforming equal weighted indexes might be an early indicator that the rally of 2017 is losing momentum. My speculation is that large investors don't want to lock in any gains for their portfolios until after they know what will happen with tax reform or early 2018. The logic being that any tax changes, if they are to pass, will be applied in 2018. Hence why not wait a couple more months and sell in 2018? Let's end with this quote, which I first referenced in June of 2017, from Richard Clarita, managing director at PIMCO, (as quoted from the Washington Post).
"Our bottom line is markets are a bit too relaxed. They are priced, if not for perfection, certainly for a continued run of good luck."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.
