Something very interesting has been happening to the S&P 500 Index. It has just completed an unprecedented string of continuous records. The index closed at new highs each day of the past week, each week in the past six, and each month in the past seven. Never before has this feat been accomplished.
This action would lead one to think that the equity markets should be completely exhausted and likely be at a short to immediate term top. The action of individual investors would seem to validate this assumption. Retail investors recently added $7.5 billion to equity funds which is the most in the past 18 months. A whopping $1 billion of that cash went to buy technology stocks just as they have capped off a very impressive run to new highs. Will these “late” investors get caught holding the bag after chasing the latest hot performers?
This uninterrupted march to new highs would suggest a decline is forthcoming. There are other factors that have investors on edge. The likelihood of the Federal Reserve raising interest rates in December remains high, sabre rattling from North Korea, and the continuing nonsense from our politicians continue to keep investor money on the sidelines.
Whether we finally get a meaningful decline in values to reset the markets or we continue to have investors “buy the dips,” we believe that equities are still in a longer term bull market with years left to run.
For the past year, the Dow Jones Industrial average has gained 10% more than the broader stock index, S&P 500. Manufacturing companies have continued to be driven by strong earnings reports. Just recently 3M, Caterpillar, and GM received strong earnings reports and their stock prices continue their excellent climb. Homebuilders have also soared, outperforming the S&P by 30%. Sectors that have topped out recently and declined have been Biotech and large technology companies.
The international sector has resumed its climb after an almost three year pause. Most funds with any European exposure are up 20% or more for the past year. There seems to be much more upside potential for these stocks over the more overvalued U.S. issues going forward. The action of this sector reaffirms the benefits of allocation across the various types of investments versus trying to time the rise and fall.
In conclusion, while there are many reasons for the markets to correct at this time, the reports of excellent activity in manufacturing and service sectors continue to suggest higher prices in the future.
Trying to position one’s portfolio to take advantage of either scenario is a lesson in futility with historically low chances of success.
Undoubtedly, the more recent hype about cryptocurrencies such as Bitcoin have appeared in news you have seen. These currencies, which started appearing almost ten years ago, are electronic in nature and are designed to replace the government controlled currencies worldwide. Their values are skyrocketing with some trading from mere pennies five years ago to $5,000 or more today. Currently there are over 1,000 individual cryptocurrencies and already many have completely gone away due to bankruptcy, fraud, or hacking. While we are looking at these currencies for their possible relevance in the future, they are highly speculative with many questions needing answered yet as to safety, tradability, and usefulness. We will update you as they evolve.
Enjoy your Holiday Season as it rapidly approaches!