Price
Source: dshort blog, Moving Averages: November 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 monitoring commodity prices.
Sentiment
Source: CNN Business Fear & Greed Index
The CNN Fear & Greed Index started the month of December at "Extreme Greed." During November this index reached the most greedy conditions since 2017. As Warren Buffet said, "Be fearful when others are greedy and greedy when others are fearful." The graph (below) of this index shows sentiment is rolling over and we need to keep watching to see how low it will go. Most likely it won't retest the extreme lows we observed during the end of December 2018.
Source: CNN Business Fear & Greed Index
Switching to the CBOE Volatility Index (VIX), it came close to its lowest intraday reading of 2019 at the end of November with intraday low readings of 11.42 and 11.44 on November 26 and November 27 respectively. Remember the intraday low was 11.03 on April 17, 2019. As of this writing, on December 5, beginning December has seen the VIX move into the 14-16 range and it wouldn't surprise me to see it hit or exceed 20 before year-end.
Valuation
Let's start by turning the discussion about valuation over to John Hussman and Jill Mislinski. John Hussman has a Ph.D. in economics from Stanford University and is a portfolio manager at the Hussman funds. He writes the Hussman Market Comment. His December comment The Meaning of Valuation gives investors deeper perspective on the long-term meaning of valuation as it pertains to returns. Jill Mislinki writes and runs significant portions of the DShort Blog, named after its founder Doug Short. She provides investors with monthly market valuation updates. Please read her December updates: Is the Stock Market Cheap? and Market Remains Overvalued.
The Morningstar Fair Value chart is trading a bit over fair value at the beginning of December, 1.01. According to Morningstar's site:
"The graph shows the ratio price to fair value for the median stock in the selected coverage universe over time. A ratio above 1.00 indicates that the stock’s price is higher than Morningstar’s estimate of its fair value. The further the price/fair value ratio rises above 1.00, the more the median stock is overvalued. A ratio below 1.00 indicates that the stock’s price is lower than our estimate of its fair value. The further it moves below 1.00, the more the median stock is undervalued."For more on the impact of valuations on this market read Chuck Jones' article at Forbes, The Stock Market’s 25% Gain Is Totally Due To Higher Valuations And Not Earnings. At the end of 2019 our last perspective on valuation comes from Liz Ann Sonders, Chief Investment Strategist at Charles Schwab & Co., with her commentary published December 2, 2019: Any Weather: Valuations Say Stocks are Cheap and Expensive. Her commentary examines 13 valuation measurements.
Summary
As we start December, four out of the five asset classes tracked by the Ivy Portfolio system remain "invested" with only commodities remaining in "cash." Sentiment, according to the CNN Business Fear & Greed Index, remains in "Greed" after hitting its highest "Extreme Greed" readings for 2019 during November. Valuation remains at/or above valuations seen at prior bull market peaks.
The recent repo madness in September has the Federal Reserve injecting massive liquidity back into the financial system. We'll be watching to see how much money the Fed needs to inject at the end of the year. Going into the 2020 election the most optimistic scenario for the US economy is GDP growth of 2% with increasing probability GDP misses those overly optimistic growth estimates. Data dependent investors are waiting to see margin compression start to negatively impact employment statistics, corporate bond markets and stock buyback activity. Let's turn the end of this month's post over to Joe Davis, Principal and Global Chief Economist at Vanguard. Instead of a quote, please read MarketWatch's article Why Vanguard's chief economist says there is an elevated risk of a 'large drawdown' in stocks.
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 listening to recently:
- Vanguard’s Joe Davis Discusses Global Economics (Podcast) (Bloomberg)
- Putting The Bull In Perspective (LPL Financial)
- The Stock Market’s 25% Gain Is Totally Due To Higher Valuations And Not Earnings (Forbes)
- The History of Interest Rates Over 670 Years (Visual Capitalist)
- China Faces Biggest State Firm Offshore Debt Failure in 20 Years (Bloomberg)
- Mercedes-Benz Parent Plans Thousands of Job Cuts (Bloomberg)
- Corporate debt nears a record $10 trillion, and borrowing binge poses new risks (WaPo)
- Why are 401(K)/IRA Balances Substantially Below Potential? (CRR at Boston College)
- IRS Proposes New RMD Life Expectancy Tables To Begin In 2021 (Nerd's Eye View)
- Global PMI: Global growth slips closer to decade lows as manufacturing weakness spreads to services (IHS Markit)
