Quote of the Week
“The greatest good you can do for another is not just share your riches, but to reveal to him his own.” – Benjamin Disraeli
The markets just keep rolling along setting new highs. The current P/E of 24 compares to a historical average of 17. Ned Davis Research calls it at “fair value” because interest rates are so low. The high yield bond index is above the 50-day moving average and this week’s trade signal is now a strong +2, which is the highest it can be. As Goldilocks says, “The porridge is just right.” Everything is great.
Bottom line: both the trend in interest rates (lower yields) and the trend in the overall market (the tape) are bullish. The balance of evidence remains bullish for both equities and fixed income. Our new software is performing great.
Art Cashin, a person with 50+ years of experience in this business and whom I respect, appeared on CNBC last week and his comments on market cycles and the tendency for challenges in the years that end in the number 7 caught my attention.
Art cautioned not get overly excited and said that August is the second worst performing month of the year with September being the worst. He also said that years ending in the number 7 (1987, 1997, and 2007) had seen the market peak in the first three weeks in August.
With that said, what should we do? For now, the equity market’s trend indicators remain bullish, and there is little sign of recession over the next six months. What we will do is stick to our process and take our signals from our Trend rating software. It is always best to rely on mathematics rather than opinions.
The UPI is unchanged from last week. Our allocation for most clients remains the same: 65% equities, 0% bonds, 30% alternatives, and 5% cash.
On another subject, we have available a great information packet on “Four-year action plan to prepare for college.” If you would like a copy just give us a call and we would be happy to provide the information packet.
I receive a weekly “Monday Morning Outlook” each week from Brian S. Wesbury, the Chief Economist from First Trust. Rather than summarize the article, I thought it would be better to let you read it in its original form. Since I have been talking about Price/Earnings ratios and the overvaluation of the stock markets, I think you will find this interesting.
I tend to agree with his analysis because interest rates are so low. If we start to see a rise in interest rates, there could be trouble down the road. However, I do not see interest rates rising dramatically because of low inflation and slow but steady growth. I hope you enjoy Brian’s analysis and if you want to talk about it, I would love to have that conversation with you.
The image on the right is only a screenshot; to read it now, simply click here to access it, or copy and paste the link into your browser: http://www.ftportfolios.com/Commentary/EconomicResearch/2017/8/7/shiller-p-e-still-wrong-signal
By the Numbers
“CUT IN HALF – There were 6.98 million out-of-work Americans as of 7/31/17. There were 14.60 million out-of-work Americans as of 7/31/09 (source: Department of Labor)” Michael A. Higley, BTN 08-07-2017 #8
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These are the opinions of Larry Lof, Kelly Gudenkauf, and Stephanie Mayoral and not necessarily those of Cambridge, are for informational purposes only, and should not be construed or acted upon as individualized investment advice. Past performance is not indicative of future results. Due to our compliance review process, delayed dissemination of this commentary occurs. The S&P 500 is an index of stocks compiled by Standard & Poor’s, a division of The McGraw-Hill Companies, Inc. The index includes a representative sample of 500 leading companies in leading industries of the U.S. economy. Indices mentioned are unmanaged and cannot be invested into directly. Technical analysis represents an observation of past performance and trend, and past performance and trend are no guarantee of future performance, price, or trend. The price movements within capital markets cannot be guaranteed and always remain uncertain. The allocation discussed herein is not designed based on the individual needs of any one specific client or investor. In other words, it is not a customized strategy designed on the specific financial circumstances of the client. Please consult an advisor to discuss your individual situation before making any investments decision. Investing in securities involves risk of loss. Further, depending on the different types of investments, there may be varying degrees of risk including loss of original principal.