Jobs That Pay More

Presently, there are 7,079,000 (big number) job openings in the U.S. Of these, 6,489,000 are in private industry, and 590,000 employment opportunities are in the public sector. According to the BLS 3,500,000 (another big number), workers quit their jobs in search for something better. For those seeking new employment, the public sector pays approximately 36% more all-in.

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Stocks staged an impressive rebound off the lows of today’s trading session. After falling more than 2.4% stocks closed the day in positive territory. Interestingly, the market put in what’s called a “Japanese Hammer” pattern at the close. “Hammers” designated by the long skinny tail and green body in the chart below can be useful tools pointing to market turns. The “hammer” is textbook in that it has occurred after a considerable selloff into correction territory by the S&P 500. Simply, the market made a stand this Monday in spite of the fear and global disturbances, and buyers gobbled up shares, as willing sellers were anxious to part with them.

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DJIA closed down -799.36 points, -3.10%. It is the worst point loss for the Dow ever in the month of December.

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Stocks Are Up 5% in 5 Days: Bolt or Buy?

When it comes to valuing the stock market, the price-to-earnings ratio (PE) is often cited. Calculating the PE ratio for any security is straight-forward, divide the price of the stock or index by its 12-month earnings. As an example, the S&P 500 closed friday at 2760.17, and the index earned $150.53 in operating profits over the past 12 months ending September 30, 2018; therefore, the PE ratio is 18.33. Professional money managers, hedge fund owners, private equity investors, venture capitalists, and real estate moguls keep a close eye on asset valuations, vis-à-vis price-to-earnings ratios. Since 1988, the S&P 500 traded at an average PE multiple of 17.95, priced on earnings from continuing operations.

On September 20th,the S&P 500 closed at 2,930.75, its 19th record of the year! The celebration was short-lived; over the next 64 days, stocks did an about-face and turned sharply downward. Over the next two months, the index posted losses 30 out of 45 trading sessions falling to 2,632.56, minus 10.17%, correction territory. Perma-bulls argue the economy is strong and corporate profits have yet to garner the full benefit of the 2018 Tax Cuts & Jobs Act. Furthermore, they contend once the tariff tangles with China abate and the Fed loosens the reins upon monetary policy stocks will continue their ascent.

Markets are known as leading indicators in that they forecast what’s to come, both optimistically and pessimistically. So, what’s the market trying to tell us and, is the market always right? Since 1950, the United States economy has experienced ten recessions. Recessions are defined by the Nation Bureau of Economic research, as two consecutive quarters of GDP contraction. During this timeframe, the S&P 500 witnessed 33 market downturns exceeding ten percent. Hence, I update the old joke, “The stock market has predicted 33 out of the past ten recessions.” In other words, the market is not always correct about the future and at times gets behind, or ahead, of itself.

Illustrated in the chart below, are the S&P 500 Index (blue shaded area), and its forecasted PE ratio (red line) for the next-twelve-months (NTM). The red-dotted line represents the average PE ratio. Presently, the consensus view of market participants has shifted from moderately optimistic to noticeably pessimistic. Chicken little types are clamoring the sky is falling, and the next mega-meltdown is coming soon and will be worse than the bursting of the technology and housing bubbles in which the stock market fell by 49.1% and 56.8%, respectively. Doubters assert valuations are stretched, and the extended duration of this nearly decade-old bull run is nearing its end. Do bull markets die of old age? According to Sam Stovall, CFRA Chief Investment Strategist, market historian, and luminary, “Bulls do not die of old age; they die of fright. What are bull markets afraid of? Recession.”

Notice the PE ratios after the fact, in September 2000, and June 2008. The ’00 period was sparked by euphoria stemming from the dawning of the internet era. The ’08 excitement was ignited by profligate credit access and housing mania. During both of these episodes, forecasted earnings for the subsequent year after analyst revised estimates lower, showed markets 83% overvalued compared to their long-term average. Operating earnings for the S&P 500 are predicted to reach $174 at year-end 2019, with the index at 2,760 equating to a 15.86 PE ratio, 11.6% below its 30-year average. For today’s S&P 500 valuation to follow suit with the ’00 and ’08 debacles, forward earnings would have to be cut by over half to $83.65 per share, levels last seen in Q4-2010. Sellers contend that 2019 will be the top in this earnings cycle. Buyers disagree and see this bull market continuing to higher levels. Who will be right or wrong six months from now? Warren Buffett says, “Stocks are voting machines short-term, and weighing machines long-term.” By that, Mr. Buffett informs investors that asset prices ultimately follow their fundamentals, i.e., sales and earnings.

Image Source: 1DB.COM

DISCLOSUREDISCLOSURE: The opinions made herein are for informational purposes and are not recommendations to any person to buy or sell any securities. The information is deemed to be reliable, but its accuracy and completeness are not guaranteed. 1st Discount Brokerage does not accept any liability for the use of this column. Readers of this column who buy or sell securities based on the information in this column are solely responsible for their actions. Investors/traders are advised to satisfy themselves before making any investment. Nothing published on this site/ article should be considered as investment advice. It’s not an offer to buy or sell any security. Readers are solely responsible for their profits or losses. 

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Bitcoin or Bust?

Twelve months ago, a conservative investor could have invested their money into 1-year treasury yielding 1.19%; treasuries are considered the safest securities and guaranteed by the Federal Government. Conversely, for those less cautious, say the more venturesome and daring types who chose to purchase Bitcoin(s) over this timeframe, they too are nearing a return of just over 1%. Incidentally, the top in the advancement of Bitcoin’s meteoric ascent coincided with the futures markets trading Bitcoin. So what happened? The futures market enabled professionals to bet on the downside, that is, that Bitcoin would crater. Who are the winners and losers?

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#Election2018 – For those interested in tracking tonight’s results themselves, here is a printable scorecard to add to the fun! May this 11/6 be your best yet!

#Election2018 – For those interested in tracking tonight’s results themselves, here is a printable scorecard to add to the fun! May this 11/6 be your best yet!


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#Halloween Chip off the old block!

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.

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Futures Fall

U.S. stocks are poised to follow Asian and European bourses lower at the opening. The S&P 500 is down 6.0% (175 points), since hitting its record high a month ago on September 20. Futures are forecasting the Dow and S&P to be down ~1.5% at the market opening this morning. Skittish investors cite the Fed raising rates, China’s slowdown, election jitters, and death in Istanbul of WSJ journalist Jamal Khashoggi as catalysts accelerating the selloff. Others, see the pull-back as quite normal in a bull market that has increased 300%, in tandem with rising earnings, and exhibited remarkable resilience for over 9 years. Nothing goes up forever, does it?
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What does a downturn in housing starts mean for investors?

Housing Starts:
871 new single-family homes went under construction in September, and markets acted unfavorably to the news. The WSJ, Bloomberg, CNBC, reporting the figures as “Another weak month,” “Continuing soft stretch,” “Housing starts fall more than expected.” Is homebuilding nearing its end or is this setback just a bump in the road? Single-family home construction has averaged 1,030,000 units the past 40 years; currently, single-family housing starts are 15% below the long-term average. During this time span, the population has grown to 328 million people from 233 million. According to the Census Bureau, the U.S. population is increasing by 3.3 million per year. Based on supply and demand, I am not so sure the end is near, and there still may be considerable upside to come.
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What’s the market trying to tell investors?

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.

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