Today, my son Chip decided to show up at work dressed as me to celebrate the holiday. His point that I wear black on a regular basis is well taken. LOL, I’ve never seen him in glasses or with a sweater.
Why are stocks rallying today? Perhaps, it is that 80% of reporting companies, thus far, have exceeded street consensus forecasts (beats). The market has been at a pivotable state, teetering against opposing forces. There some that espouse the expansion is nearing its twilight and stocks will discount future gains in anticipation of economic slowdown and rising rates. Others see the glass three-quarters full and deem earnings are such that future valuations may justify the bull ride continues apace.
On September 20th, the S&P closed at 2,930.75, setting an all-time high. The Nasdaq Composite and Dow Jones Industrial Average were flirting near record levels. Twenty days later, the S&P, DJIA, and Nasdaq are down 6.9%, 6.6%, and 9.6% respectively. What changed in a matter of three weeks? Is it the usual cast of characters: trade war concerns with China, hawkish Fed monetary policy, historical volatility indicative of October, unprecedented severe weather events, political polarity surrounding mid-term elections, stretched valuations, and a bull market that is the longest in history? Mr. Market can be cunning and fickle, yet is incredibly shrewd at discounting all known information and pricing it into stock prices; so is this decline a forewarning, or an opportunity to pick up equities at marked down prices?
From my desk, the catalyst that spooked buyers and emboldened sellers is the ongoing specter of higher inflation, collaborated by the 10-year Treasury note increasing to 3.21% this week, its highest yield since May 6, 2011. On September 26th, the Federal Reserve raised short-term rates for the eighth time this cycle. The Fed aims to prevent the economy from overheating and escalating unwanted price inflation. September’s CPI inflation report issued by the Bureau of Labor Statistics tells a different story. Consumer prices rose a scant 0.1% last month, and are up modestly 2.3% for the year, well below its 3.5% seventy year average. Market participants are warning that the Fed is projecting another rate increase in December, with more to follow in 2019. I am less sure that the Fed’s rate tightening trajectory is ironclad. Chairman Powell and his team of Fed governors are astute. Chairman Powell’s message has been transparent and open. Up to the present, i.e., late September, economic data has supported continuous Fed action to curtail accelerating growth. As 401k, IRA, and equity owners at large assess the damage to their retirement and investment accounts, they are likely to tighten their purse strings until stock indices stabilize; this too will become a headwind to the economy. Additionally, just this week, the IMF projected slower global growth for the year ahead. As the Fed digests all new facts and figures, it may be inclined to softening its stance on further rate hikes.
Inherently, stock prices closely track earnings growth. In the 40-year chart above, I’ve illustrated quarterly earnings by the red dotted line and the S&P 500 price with the bars. Over the past four decades, the S&P Index has closely paralleled its per-share earnings. Over the next twelve months, earnings estimates target $176.52 per share. As of this writing, the S&P trades at 2,738.62, equating to a forward price-to-earnings ratio of 15.5, six percent above its 14.5 multiple the past ten years.
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When it comes down to living the best life you can, money matters! From the time kindergarten begins parental questions get underway: Will my child be a movie star or choose to work at Starbucks. Should they go the trade school route, or matriculate in college? Which career is best in today’s tech-centric era? Is this your passion? Oh yeah, and the elephant in the room question, how much money does it pay? From the top-down, there are two primary choices in making a career decision, either work in the , or for the . According to the BLS, hands-down government jobs on average pay more. #FinancialFitness
What is the most important indicator of sustainable economic growth? Jobs, jobs, and more jobs! The U.S. economy has been adding jobs in droves, which is good. The million dollar question is how much longer can it last? Since the unemployment low of Feb. 2010, U.S. payrolls have increased by 20 million! In this week’s JOLTs Report, after this enormous expansion to the workforce, there are still jobs available. Many jobs! During the recession low point there were just over 2 million job openings, now there are nearly 7 million. What does this indicate towards the future? https://bit.ly/2ljZFHH