Price
Source: dshort blog, Moving Averages: September Month-End Update
Jill Mislinski writes for the dshort blog:
All three S&P 500 MAs are signaling "invested" and three of five Ivy Portfolio ETFs — Vanguard Total Stock Market ETF (VTI), Vanguard REIT Index (VNQ), and PowerShares DB Commodity Index (DBC) — are signaling "invested".Vanguard FTSE All-World ex-US ETF, symbol VEU, remained in cash for the fourth month since it changed from "invested" to "cash" at the end of May. iShares 7-10 Year Treasury Bond ETF, symbol IEF, briefly gave an "invested" Ivy Portfolio signal at the end of August switching back to "cash" at the end of September. Let's keep watching to see if IEF changes to "invested" at the end of October.
Sentiment
Source: CNN Money Fear and Greed Index
Sentiment moved from "Greed" to "Neutral" during the month of September. None of the seven indicators that compose this index were in "Extreme Fear" or "Fear" last month, however as we enter October two indicators read "Extreme Fear." Those are: 1) CBOE 5-Day Average Put/Call Ratio and 2) Net new 52-week highs and lows on NYSE. One indicator, the Yield Spread: Junk bonds vs. Investment Grade, is reading "Extreme Greed." The remaining four components of this index currently read "Neutral." Before we review valuation let's briefly review the Goldman Sachs Bull/Bear Risk Indicator:
Source: Goldman Sachs via MarketWatch
The analysis of this indicator was summarized by Cormac Mullen at Bloomberg as follows:
"A Goldman Sachs Group Inc. indicator designed to provide a 'reasonable signal for future bear-market risk' has risen to the highest in almost 50 years. The firm’s Bull/Bear Index, which is based on measures of equity valuation, growth momentum, unemployment, inflation and the yield curve, is now at levels last seen in 1969. While the gauge is at levels that have historically preceded a bear market, Goldman strategists including Peter Oppenheimer wrote in a note last week that a long period of relatively low returns from stocks is a more likely alternative."If you'd like to read more about this please read Mark DeCambre's MarketWatch article: A stock-market bear signal is at a more-than-4-decade high, says Goldman.
Valuation
Source: The Macro Tourist (please click on graph to enlarge)
Kevin Muir writing at the MacroTourist blog graphed how many Russell 3000 companies trade at more than 10-times revenues. He used a Bloomberg query to create his graph. I've highlighted price to sales data for the S&P 500 on this blog in the past, but this chart surprised me. I doubt individual investors, using their retirement plans at work, have any idea how expensive the stocks are in their target date funds. The best case scenario for improving valuation metrics remains for this market to produce mediocre returns rather than forcing investors to live through another significant market decline, the possible third of this century. Jesse Felder wrote a blog post for The Felder Report that goes into this valuation metric in more detail. If you find this interesting, please read his post: Yes, The Stock Market Is Just As ‘Stupid-Bat-$hit-Crazy Expensive’ Today As It Was At The Peak Of The DotCom Mania.
Ben Carlson, who created the blog A Wealth of Common Sense, accurately summed up the use of valuation in his recent blog post Market Timing is Hard when he wrote: "Valuations are useful for setting expectations but not timing the market." As I've written many times, overvalued markets frequently become more overvalued.
Summary
Price indicators remain positive for multiple asset classes, VTI, DBC and VNQ. Ivy Portfolio signals for bonds and international stocks as represented by IEF and VEU suggest staying in "cash" rather than "invested" for the month of October. Sentiment is currently neutral. U.S. stocks remain overvalued to extremely overvalued depending on which metric one uses to measure them. Let's end with this classic quote from investor Sir John Templeton:
"Bull markets are born on pessimism, grow on skepticism, mature on optimism, and die on euphoria."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 and watching recently:
- Jeff Bezos At The Economic Club Of Washington D.C. (YouTube)
- A 'classic topping formation' that has shown up in every stock-market peak over the past 5 decades is rearing its head once again (Business Insider)
- Schwab Market Perspective: Mixed Messages Sending a Clear Signal? (Schwab)
- One Third of Americans have $0 Saved for Retirement (The Big Picture)
- A Historic Divergence In Stock Market Breadth (The Felder Report)
- ECRI on EM vs. U.S. Growth (Bloomberg via ECRI)
- Do Spectacular Earnings Justify Spectacular US Stock Prices? (Project Syndicate)
- Investors banking on a stock market rally after the election should take a look at this chart (MarketWatch)
