That's the opinion of at least one analyst who points out that if stocks reach the same valuation level they reached during the two greatest stock market bubbles in U.S. history, the Dow could hit 30,000. I don't know if that should make one optimistic or frightened. MarketWatch has the story. In a note to clients, McMillan asks the obvious: Where does the Dow go from here, after cracking that 21,000 ceiling? Given stocks are in uncharted waters, he looks for a steer in the Shiller’s CAPE ratio, which compares equity prices with earnings over the past 10 years to gauge frothiness in the … [Read more...]
Epic Rally Squeezed Short Money Until it Really Hurt
The shorts got squeezed after Trump’s speech. The fast money didn’t look very smart here. Stock market gurus are out in full force explaining the reasons for the rally. But I have not heard the real reason from a single person. To get to the answer, let’s start by reviewing an annotated chart of DJIA futures. Please click here for the annotated chart. To find out what happened today, we’d have to know how large players were positioned going into Trump's speech, which took place after the close of the stock market. (Positioning, in this context, means aggressive short selling or buying … [Read more...]
Kellogg Abandons the Old, Embraces the New
As American shoppers flee big box stores to do more of their shopping from the comfort of their homes, Kellogg is changing its delivery model to adapt to the trend. If shoppers aren't even going to stores, Kellogg won't either. Instead the company will be delivering its products to grocery warehouses where the grocer will decide what to move to retail aisles, and what to keep on hand to fulfill online orders. Annie Gasparro explains the choice at The Wall Street Journal: Kellogg Co. is abandoning its traditional way of delivering some snacks to stores in an effort to cut costs, though it … [Read more...]
Have we reached peak Amazon?
There was a time not too long ago when it seemed that Wal-Mart was going to dominate the retail landscape for the foreseeable future. Wal-Mart had the scale, the infrastructure, the buying power, and a dominant brand. CNBC even produced a 90-minute documentary on the company. Today, it seems Amazon has dislodged Wal-Mart as most-admired in the retail space. Amazon is dominant in online retail. It has the infrastructure, the scale, and the buying power to succeed. Nobody can catch Amazon in online retail, right? Maybe, but that isn’t stopping Wal-Mart from trying. The traditionally … [Read more...]
Will Soaring Smallcap Valuations Now Collapse After Euphoria?
After the election of Donald Trump, U.S. small-cap stocks saw their prices explode upward on the hopes that tax and regulatory reform would boost performance. But can the hype match reality, and if it does, has all the opportunity already been priced in? Robin Wigglesworth writes in the FT: US small stocks guru Henry Ellenbogen is concerned that the ferocious post-election equity rally could unravel unless the economy accelerates sharply to justify the frothy valuations, warning that most gains were powered by fickle inflows into exchange traded funds. So-called “small-caps” — or smaller … [Read more...]
Don’t be Lulled to Sleep by this Market
The S&P 500 hasn't traded in a daily range of 1% or greater for 34 sessions. That's the longest such a trend has continued since 1995. But investors shouldn't be lulled to sleep by a sleepy market. Be vigilant and continue to avoid risk. Chris Dieterich explains the Index's low volatility at The Wall Street Journal. To be sure, the stock market has mostly been going up even though the daily moves have been soporific. Since the streak began, the index has climbed just 1% in total, but it’s still set new all-time highs along the way, most recently on Jan. 25. Still, uncertainty about the … [Read more...]
Wal-Mart Assaults Amazon in Free Two Day Shipping War
The Wall Street Journal tells readers that Wal-Mart is today able to ship millions of products to any house in the U.S. in two days. Wal-Mart Stores Inc. is abandoning its effort to create a rival to Amazon.com Inc. ’s membership program. The service, called ShippingPass, was introduced almost two years ago and offered free two-day shipping for customers that paid the $49 annual membership fee. Instead, Wal-Mart will offer free shipping on more items it sells online and lower the minimum purchase required for free shipping on all orders to $35, from $50. Wal-Mart declined to say how … [Read more...]
Portfolio Strategy: When Good Companies Make for Poor Investments
Good companies don’t always make good investments. If you are a regular reader of this site you know we have written that often. Coca-Cola is a great business, but if you would have purchased it at year-end 1999, ten years later you would have been looking at an average annual return of about 2%. Over the course of that ten-year period, Coke had an average return on capital of about 21% and its earnings tripled. Why did the stock of one of the world’s great companies perform so poorly despite the impressive financial performance? The 45X earnings that investors paid to buy Coke shares … [Read more...]
What Dow 20,000 Means for Nasdaq Investors
Investors pay a lot of money to sound good at cocktail parties. Owning growth companies, often found in the NASDAQ Index, sounds exciting, cutting edge, and like a can’t miss investment. But good ideas often make for terrible investments, whereas good “values” make for great ones. That’s why you should always consider the value you’re getting for any stock you purchase. An easy way to do that is to evaluate a stock's dividend and dividend increases over an extended amount of time. A simple comparison of how this dividend-centric approach has worked over the last 17 1/2 years is to compare … [Read more...]
What Dow 20,000 Means to Me
Yesterday, the Dow hit 20,000 for the first time. I remember vividly when the index hit 10,000 back in 1999 (Chart 1 below). Dow 20,000 took 17 1/2 years—a 4.2% compounded annual return, not including dividends. And that’s the key—not including dividends. Because for those of us that have been dividend-centric investors, the road from 10,000 to 20,000 has been a whole lot smoother. In fact, while the index has returned 101% from March 29, 1999 when it first hit 10,000 in price terms, when dividends are included, the total return becomes 205% (Chart 2 below). In other words, more than half of … [Read more...]
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