CMG AdvisorCentral

Tactical investing news, views and resources for financial advisors

Market Valuation & Forward Returns Update

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In the May 5th issue of On My Radar, Steve Blumenthal provides his popular survey of current market valuation and 10-year forward returns forecast.

First, Steve offers a quick primer on valuation and price-to-earnings (P/E) in layman’s terms.  Most investors (and even some financial advisors) don’t understand valuation methodologies and how median P/E works and what it tells us.

Steve presents a number of informative charts that advisors can use in their own valuation work and to discuss valuation and forward returns with their clients.

In sum, the broad market (i.e., S&P 500) remains very expensive and overvalued according to several metrics and 10-year forward returns are likely to be muted (0%-3% before inflation).  Steve says, “We clearly find ourselves today in a high valuation and low potential forward return environment.”  Click below to access the charts and Steve’s analysis!

ON MY RADAR

Monthly Market Valuation Review

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11-04-09Early each month, we look at market valuations to see where we are.  It’s also important to consider what valuations may indicate with respect to probable (7- and 10-year) forward returns.   We believe risk is most when we feel it least and the risk is least when we feel it most.  Today, we feel it least.

In Friday’s On My Radar, we presented several valuation charts, including median price-to-earnings (P/E) and Warren Buffett’s favorite.

Bottom line: the market remains overvalued.  Trend following strategies can help you participate and protect.

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Use Caution Chasing Yield

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CMG Capital Management Group Market AnalysisWe have four interns this year. At the start of their internships, we required that they read “How the Economic Machine Works” by Ray Dalio.  The paper discusses how central bankers have certain levers they can pull, such as raising and lowering interest rates and other tools to speed up or slow down the economy.

I told them that I’m thrilled our fixed income strategies are doing well yet the unprecedented central bank experiments have so distorted price discovery that I just don’t know if I should scream or shout.  I’m concerned that the Fed has boxed itself into a Keynesian corner.

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Bond And Stock Market Outlook

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By Steve Blumenthal, CEO, CMG Capital Management Group Inc.

CMG Capital Management Group logo

Wealth through ingenuity.

Bond yields rose again this week and are nearing an 8-month high.

Rising yields are good for some stocks and bad for others.  Dividend payers, REITs and Utilities have been among the recent worst performers.

Alternately, banks and life insurance stocks have been rising since January and strong again last week.  Bond yields began rising in early February.  The 10-year Treasury yield has gone from 1.67% (YTD low on February 2) to 2.48% last Friday.

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Indicators Still Bullish For Stocks And Bonds

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CMG Capital Management Group Investment Risk Meter

Prevailing Trend Still Bullish For Stocks And Bonds – But Risk is High

By Stephen Blumenthal, CEO, CMG Capital Management Group

The market feels heavy and the “sell in May and go away” seasonality issues are immediately in front of us.  Although aged the overall trend remains positive as measured by Big Mo, 13/34-Week EMA and because volume demand continues to be stronger than volume supply (more buyers than sellers). “Don’t Fight the Fed” remains an important theme (at least for now).

  • Cyclical Equity Market Trend: The Primary Trend Remains Bullish for Stocks
  • Volume Demand Continues to Better Volume Supply: Bullish for Stocks
  • Cyclical Trend for Bonds Remains Bullish Read More >

Trend Still Bullish For Stocks And Bonds

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Steve Blumenthal, CEO, CMG Capital Management Group

Steve Blumenthal, CEO, CMG Capital Management Group

4/22/2015 Trade Signals: In summary, both Big Mo (Momentum) and the 13/34-Week EMA suggest that the market remains in a cyclical bull market (up trending) state.  I believe trend is most important: therefore, buy the dips (on extreme pessimism) as long as the 13/34-Week Blue EMA line is above the Red EMA line and own equities (but hedged as valuations are high, the market bull is aged; thus, overall equity market risk is high). For charts and explanation see Trade Signals – “Risk On” Trade Remains in Place.

From an investment management perspective, I’ve followed, managed and written about trend following and investor sentiment for many years.  I find that reviewing various sentiment, trend and other historically valuable rules based indicators each week helps me to stay balanced and disciplined in allocating to the various risk sets that are included within a broadly diversified total portfolio solution.

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High Valuations = Low Foward Returns

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Steve Blumenthal, CEO, CMG Capital Management Group

Steve Blumenthal, CEO, CMG Capital Management Group

Stock valuations are high, the financial media has been reporting lately. This is a topic  I examine frequently and it is the subject of my recent weekly commentary On My Radar.

Over the course of the first quarter, Standard and Poor’s lowered its forecast for 2015 earnings from $135 to $112 to $110 per share.  With prices already high relative to corporate earnings, such a trend is not an investor’s friend.

Let’s take a look at current valuations and see what they may tell us about the market’s return over the next ten years.  Hint: it’s very low.  Be prepared to adjust your sails.

The following chart, courtesy of Ned Davis Research, shows the market to be richly priced.  Median P/E is my favorite valuation indicator.

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