Price
Source: dshort blog, Moving Averages: October Month-End Update
Jill Mislinksi writes the following at the dshort blog:
All three S&P 500 MAs are signaling "invested" and four of five Ivy Portfolio ETFs — Vanguard Total Stock Market ETF (VTI), Vanguard REIT Index ETF (VNQ), Vanguard FTSE All-World ETF (VEU), and iShares Barclay 7-10 Year Treasury (IEF) — are signaling "invested".Both U.S. and foreign stocks switched from "cash" to "invested" at the end of June. REITs have signaled "invested" since the end of January 2019 and treasury bonds, IEF, have signaled "invested" since the end of November 2018. Commodities have signaled "cash" since the end of October 2018. If moderate inflation is part of the next phase of the global economy we need to continue watching commodities.
Sentiment
Source: CNN Business Fear & Greed Index
The CNN Fear & Greed Index started the month of November at "Extreme Greed." Currently none of the seven components of this index read "Fear" or "Extreme Fear." As Warren Buffet reminds us,"Be fearful when others are greedy and greedy when others are fearful." Switching to the CBOE Volatility Index (VIX), it has dropped considerably to the 12-13 range. Its lowest reading of 2019 is 11.03 on April 17, 2019.
Valuation
Please click on the above chart to enlarge
Source: Mark Hulbert via MarketWatch
According to reporting by Mark Hulbert, founder of Hulbert Financial Digest and senior columnist for MartketWatch, "The chart [above] shows the percentage of past bull market peaks that had lower valuations than what prevailed at past bull market tops. As you can see, these percentages range from 86% to 100%." In his opinion piece, U.S. market is less overvalued now, but that doesn’t make stocks a ‘buy’, he writes: "The stock market was so overvalued at the September 2018 top that, even with the slight easing, it remains more overvalued than it was at almost all bull market tops of the last century." He perfectly summarizes using valuation as an indicator with these few sentences:
"None of this means that equities are about to begin a major bear market. Valuations are a notoriously poor guide to the stock market’s near-term direction, as is amply illustrated by its uptrend over the last several years in the face of persistent overvaluation. But just because the market has so far resisted the gravitational pull of that overvaluation doesn’t mean that it will be able to resist it forever."Another source of market valuation interpretation came from Jesse Felder (Bio). He published, How The U.S. Stock Market May Be ‘Turning Japanese’, on October 23. In it he wrote, "Is it so hard to believe that, after the U.S. equity market hit 140% of GDP this year, that the S&P 500 could suffer a similar fate? Of course it is, we’re in the midst of another mania and there is only room for belief in the impossible." Please read his entire piece to learn more about what he is seeing in today's stock market.
Summary
As we start November, four of the five asset classes in the Ivy Portfolio system indicate "invested" with only commodities still indicating "cash." Keep watching commodities for signs that inflation has stabilized and started increasing. Sentiment starts the month at "Extreme Greed" indicating it is not time to chase this market with our precious investment dollars. Valuation of equities remains extended at or above prior bull market peaks. Questions on my mind at month end: 1) Will the longest economic expansion in U.S. history last until the U.S. Presidential Election? 2) Where is the dollar headed after its pullback in October? 3) Has the Federal Reserve activity started to stimulate the economy?
Examining the macro environment, I see investors looking for transitions. Will U.S. economic data show a manufacturing slowdown spreading to services? Will a business investment slowdown spread to consumers? The Vistage CEO Confidence Index for Q3 2019 fell to its lowest reading since 2011. Moreover, it showed only 12% of CEO's expect economic conditions to improve in the year ahead. As Bloomberg reported on October 28, 2019 in an article titled Goldman Says Rush From Stocks to Cash, Bonds Biggest Since 2008: Goldman finds "Net corporate purchases for U.S. equities will total $470 billion in 2020, down 2% from this year." Are investors currently experiencing peak buyback support of equities? Lastly, data dependent investors are waiting to see margin compression start to negatively impact employment statistics. Let's end with this classic quote:
"Bull markets are born on pessimism, grown on skepticism, mature on optimism, and die on euphoria.” --Sir John TempletonAs 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, listening to, and watching recently:
- Fact: 32% Of The Fed's Past 60 Rate Hikes Were In Election Years (Seeking Alpha)
- America’s Middle Class Is Addicted to a New Kind of Credit (Bloomberg)
- Fed Cuts Rates as Expected … Three and Done or More to Come? (Schwab)
- “All we need is just a little patience” (Miller Value Partners)
- The 7-Year Car Loan: Watch Your Wallet (NPR)
- Why the repo market went awry…(The Economist)
- Why the bull market won’t end with a typical crash, says hedge fund billionaire Ray Dalio (MarketWatch)
- There are more wealthy Chinese than Americans for the first time (CNN Business)
- Mapping the Population of Global Millionaires in 2019 (HowMuch)
- This little-known recession indicator is now sending investors and consumers a warning (MarketWatch)
