In Friday’s On My Radar, Steve offered his monthly look at market valuations. The data shows that they remain high by most every measure, however Steve says that it doesn’t mean stocks don’t move higher. Click below to see the most recent data.READ MORE
FAANGs Dominate S&P 500
The market cap of the top five S&P 500 companies: $4.1 trillion… The market cap of the bottom 282 S&P 500 companies: $4.1 trillion. Just saying…
Risk-On or Risk-Off?
In Friday’s On My Radar, Steve Blumenthal discusses his favorite market risk-on/risk-off indicator: the Ned Davis Research CMG U.S. Large Cap Long/Flat Index. The Index measures “market breadth,” which, generally speaking, is a measure of market activity, such as how many stocks are advancing higher in price and how many are declining, how many are making new highs and new lows, is the trading volume advancing or decreasing in size and is price momentum strong or weak by looking at the number of stocks that are in uptrends and downtrends.
The NDR/CMG process measures market breadth by analyzing the overall technical strength across 22 individually measured sub-industry sectors. The process measures the trend of each of the sub-industry sectors, evaluating the rate of change in price momentum over short-term and long-term time frames and directional trend of each sub-industry sector.
Click below to find out what this important indicator is telling us about current market breadth and whether we should be risk-on or risk-off.READ MORE
NASDAQ’s Jill Malandrino Interviews Steve Blumenthal
Last week, NASDAQ’s Global Market Reporter, Jill Malandrino, interviewed Steve Blumenthal at the Philadelphia Stock Exchange.
Steve discussed the Fed’s recent interest rate hike and its plans for additional increases this year. Steve urged caution, noting that 10 of the last 13 interest rate increase cycles have landed the US in recession. Click below for the full interview and potential moves investors can make to protect and preserve.
Recession Watch Indicators
Recently, we offered current U.S. recession watch charts, including the Employment Trends Index, the Economy and the S&P 500 Index, and Inverted Yield Curve.
It’s critically important to remain vigilant and to check these indicators regularly because the next great buying opportunity could be right around the corner.
The current recessions charts indicate…READ MORE
The Debt Bubble and Interest Rate Trigger
Our equity market trend model signals remain moderately bullish and our bond market trend model signals remain bearish. With that caveat, we’re speeding down the road with limited visibility to the problem that exists just around the next turn. The mother of all bubbles exists and it is in the debt markets. It is global in scale and there is no easy way around the problem. Like bubbles past, this too will pop. The trigger? Rising interest rates.
The debt situation in the U.S. is bad. As of December 31, 2017, it stands at 329% debt-to-GDP. It’s worse in the Eurozone, which is currently at 446% debt-to-GDP. For perspective, credible studies show countries get into trouble when debt-to-GDP exceeds 90%.
But what does this really mean for the economy and for you?READ MORE
Equity Market Valuations and Probable Forward Returns
At which point do rising interest rates spark the fire? Rates are key to the equation of risk. In Friday’s On My Radar, Steve surveys what the current equity market valuations tell us about risk… and likely forward returns. Should you be playing more offense than defense or more defense than offense? Valuations can help.READ MORE
Blumenthal’s 2018 Market Outlook
In Friday’s On My Radar, Steve provides his much-anticipated market outlook for 2018.
Steve says, “The weight of market trend evidence remains bullish. I remain focused on both market momentum and trend evidence. Despite the aged, overvalued and over-bullish environment, as evidenced in Trade Signals each week, I remain moderately bullish on both equities and fixed income.”READ MORE
U.S. Household Asset Allocation (Ned Davis Research)
In past valuation posts, I’ve occasionally shared the following two charts. Ned Davis Research (NDR) charts the Federal Reserve’s “U.S. Household Asset Allocation” data. Below is the charted history of stock, bond and cash percentages. Stock ownership is currently 55.83% of a “Household’s” asset allocation (upper section of next chart).
NDR looks at that stock allocation number (55.83% today) and they then do something really cool. They analyze the history of the percentage in stocks and plot the returns an investor received 10 years later.NEXT CHART
“Greed, Fear, and Fallacy”
Several weeks ago, I shared an interview with behavioral economist and recent winner of the Nobel Memorial Prize in Economic Sciences, Professor Richard Thaler (here). So when I read Martello Investments’ monthly commentary this week, I thought it perfect to share their piece with you. Below is an excerpt from Artie and Charlie.
Earlier this month, Richard Thaler received the Nobel Prize in Economics, and his recognition was long overdue. In a world where conventional economics is driven by simplifying assumptions — assumptions like “markets are efficient” and “investors are rational” — Thaler’s contributions to the field as one of the founding fathers of behavioral finance bring a realistic perspective. The underlying principles of behavioral finance, blending financial theory with psychology, accept the emotional and cognitive biases of most investors. Instead of assuming investors are rational, Thaler and others acknowledge that, on the contrary, most investors are irrational, emotional creatures that are driven by a combination of greed, fear, and fallacy, and that it is these behavioral issues that can cause bubbles and overreactions.
Despite tidy econometric models that peg investors as rational creatures, we value the contributions of the behavioral camp; we believe that emotions and irrational decision-making tend to govern investor behavior, oftentimes to the detriment of the investor. There are numerous behavioral biases prevalent in investing; some of the more notable include loss aversion (losses are generally 2-3X more painful than the positive feelings associated with similarly sized gains), confirmation bias (only pay attention to opinions that agree with you), and endowment bias (what we own is more valuable than what we don’t). Ultimately, these behavioral fallacies can result in investors buying high (chasing) and selling low (out of frustration and fear), the consequences of which are long-term wealth destruction.