Despite the ongoing trade war and skirmishes in the Middle East, stocks posted their best three first three quarters since 1997. Gunjan Banerji writes in The Wall Street Journal: The S&P 500 is now sitting just 1.6% below July 26’s all-time high, but it has also risen a mere 2.2% from a year ago after a brutal selloff last fall—encapsulating the sideways trading pattern that has gripped markets since the beginning of 2018. The quarter ended on a relatively quiet note. The S&P 500 ticked up 0.5% to 2976.74 Monday, paced by Apple, which closed at its highest level this … [Read more...]
How Much More Are Stocks Really Worth when Rates Are Low?
Gary Shilling warns against overpaying for stocks simply because rates are low. In piece for Bloomberg, he explains that investors "tend to be overly enthusiastic at business cycle peaks when corporate cash is plentiful and purchase their shares at high prices." He writes: U.S. stocks are expensive by historical standards, and the bulls try to justify current valuations by pointing to extremely low levels of interest rates. There are a number of reasons why that’s no reason to pay sky-high prices relative to profits. With companies preparing to start reporting results for the third … [Read more...]
Activists Turn Up the Heat on AT&T
Activist investor Elliott Management has amassed a $3.2 billion stake in AT&T and is advocating for the sale of underperforming assets. The investors claim that AT&T is more valuable than its recent share price would suggest and that it should be run more like Verizon. Connor Smith reports at Barron's: AT&T shares shot up after Elliott Management revealed a $3.2 billion stake in the company, as well as a plan the activist investor says could bring a 65% gain in the stock by the end of 2021. Elliott Management’s Jesse Cohn and Marc Steinberg wrote in a letter to AT&T’s … [Read more...]
Take it from the Forty-Niners, There’s a Better Way to Play Marijuana Stocks
In 1848, there were around 1,000 non-native people living in California. By the end of 1849's Gold Rush, there were over 100,000 living in the territory. By 1852, those settlers had found $2 billion worth of gold in the area. Despite the fortunes made by gold, most of the forty-niners weren't successful. The Sacramento Bee reports that "one in every five miners who came to California in 1849 was dead within six months." Legend has it that the people who really made money during the Gold Rush weren't the many prospectors who spent their time panning and digging for gold, but those who sold them … [Read more...]
Automation is Making Markets more Volatile
Analysts say using computers to automate the selling of stocks in volatile markets is making them even more volatile reports Richard Henderson in the Financial Times. He writes: So-called “volatility-targeting” funds that manage about $400bn in assets have bought up stocks this year as markets have calmed since markets’ dramatic end to 2018. But the renewed turmoil means they were pegged to sell $50bn by the end of Wednesday, according to Wells Fargo estimates. “When volatility jumps, systematic funds rebalance portfolios away from risky assets like equities,” said Pravit Chintawongvanich, … [Read more...]
Who’s Really Moving the Market?
After a recent spate of losses in stock markets, a wave of buying began, but it wasn't retail investors stepping in to take advantage of lower prices. Instead, the publicly traded companies themselves were propping up markets by buying back shares. Bloomberg's Lu Wang reports: As the S&P 500 slumped 6% over six days through Monday, companies boosted share buybacks to almost $10 billion a day from $3 billion previously, the firm [JPMorgan Chase & Co.] estimates. With stocks sinking and bonds rallying, the big gap in performance spurred a rotation to equities among funds that need to go … [Read more...]
Time to Get Defensive?
The Wall Street Journal's Corrie Driebusch reports a move toward consumer companies in stock markets. Driebusch calls the move "a sign that investors are hedging their bets by picking up shares of firms they believe will provide returns in a struggling economy." You'll notice on my chart below during this century, consumer staples have beaten tech stocks and the S&P 500 index. Now it seems, investors are buying consumer staples in a bid for defense against a potential economic recession. Driebusch writes: One of the hottest stock-trading strategies lately is buying shares of … [Read more...]
The Fourth—and Most Dangerous—Investment Super Cycle of My Career
I have now been working in the investment industry for 55 years, and over that time I have lived through four stock market super cycles, including the present, and most dangerous one. I explained the four cycles in March 2011, writing: Stock Market Super cycles I assure you, I do not plan to get gored on the next angry charge. Here is exactly how to look at things. Read and re-read what I am going to tell you here, and remember this stuff for the rest of your life. Since I got into the investment business, there have been three completed big cycles swings in the stock market. Cycle number … [Read more...]
Is There Room for Growth in Presidential Election Year Markets?
Yesterday, I explained the past performance in equities markets during each year of the presidential election cycle. I also noted that the tradition of strong performance during the year before and of the election have broken down somewhat this century. With that in mind, I'd like you to look at the so-called Buffett Valuation Indicator, known as a tool Warren Buffett uses for getting a feel for market under- or over-valuation. The tool is simple, it's the market cap of American stock markets divided by the country's GDP. The higher the ratio, the more likely markets are overvalued, and … [Read more...]
What the Presidential Election Cycle Tells Us about Stocks
As you can see below, the years prior to a presidential election, and the election year itself, tend to be good for stocks as candidates make promises for a new tomorrow. Then, after the honeymoon is over, reality sets in and the bills come due. But twice this century, in 2000 and 2008, stock market performance during election years was not good at all, as hanging chads and “hope and change” polarized investors. And the years before the elections were not much to write home about either. America is currently in the year before a presidential election and, so far, markets are … [Read more...]
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