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Morningstar Market Fair Value Chart -- Three Months Below Fair Value & 2 Weeks Into An Uptrend
Took a moment to look at this chart today. The last fair value day was on 10/9 and chart is now 6% above the 12/24 low of 0.83. The last time the chart was lower than 0.83 was in 2011. Perhaps a climbable wall of worry is being built.
@davfor: In viewing Morningstar's market valuation graph this evening I found it reflected a reading of 0.89 which indicated that the market in general is trading 11% below fair value. Interestingly, Old_Skeet's market barometer reflects that the S&P 500 Index is also at 11% below fair value with a reading of 166. My barometer drives my equity weighting matrix which suggest that I now hold 55% equity. This is down from a year ending barometer reading of 182 suggesting an equity weighting of about 60% equity. To me, both currently indicate that stocks in general are oversold. Also, please remember that a higher barometer reading indicates that there is more investment value in the Index over a lower reading.
I have not yet reset my equity weighting matrix to weight according to my new (all weather) asset allocation of 20% cash, 40% bonds and 40% stocks. However, in doing a manual adjustment would indicate that I should be somewhere around 45% equity which would be an overweight in my equity allocation by about 5% due to the oversold barometer reading. This would require me to open a spiff (special investment position) to hold the equity overweight plus reduce my cash position by about 5%.
However, I'm going to still rock along at 40% equity due to the government shut down, uncertainty about the trade deal with China, uncertainty about the FOMC's rate posture, uncertainity about Brexit ... and, my list continues which includes just how much Corporate earings growth we will have this year. I'm thinking what we are currently experiencing is a throw back rally of sorts as stocks became extremely oversold in the closing days of December due to a good number of reasons including some hedge funds shutting their doors and liquidating their assets. In addition, with the rise in interest rates, by the FOMC, caused a good number of investors to trim their leveraged positions due to increase borrowing cost. I'm also thiking there were unmet margin calls which resulted in forced selling. Plus many other investors sold due to various reasons. In short words the selling pressure drove the markets downward as buyers were just not to be found to bid stocks upward. Now, let's see if stocks can recover (anytime soon) and make new highs climbing the wall of worry.
If a good number of the issues get resolved this year then I have the S&P 500 Index climbing to around 3,000. If only a few of the issues get resolved then I'm looking somewhere around 2750 to be a good number. And, if we continue to roll around in the muck (so to speak) 2,500 will be looking pretty darn good.
@Old_Skeet Thanks for putting some of your punch list of issues and concerns to paper as well what your crystal ball is telling you. My year-end portfolio rebalancing is now done leaving it (per Fidelity's "x-ray") at 49% stocks, 37% bonds, 8% short term, and 6% other. That's within 1% of the category %'s at the start of 2018. Since I lack a juggler-style crystal ball, the stock side of the portfolio will now snooze again until the end of the year (unless a multi-year rebalancing opportunity decides to make an appearance). One eye will stay partially open on the bond side to permit a little maneuvering as the year progresses.
Speaking of crystal balls, here is an article that speaks to the problems economists are currently having when using their E model crystals balls to make predictions about the near term fate of the economy:
Comments
I have not yet reset my equity weighting matrix to weight according to my new (all weather) asset allocation of 20% cash, 40% bonds and 40% stocks. However, in doing a manual adjustment would indicate that I should be somewhere around 45% equity which would be an overweight in my equity allocation by about 5% due to the oversold barometer reading. This would require me to open a spiff (special investment position) to hold the equity overweight plus reduce my cash position by about 5%.
However, I'm going to still rock along at 40% equity due to the government shut down, uncertainty about the trade deal with China, uncertainty about the FOMC's rate posture, uncertainity about Brexit ... and, my list continues which includes just how much Corporate earings growth we will have this year. I'm thinking what we are currently experiencing is a throw back rally of sorts as stocks became extremely oversold in the closing days of December due to a good number of reasons including some hedge funds shutting their doors and liquidating their assets. In addition, with the rise in interest rates, by the FOMC, caused a good number of investors to trim their leveraged positions due to increase borrowing cost. I'm also thiking there were unmet margin calls which resulted in forced selling. Plus many other investors sold due to various reasons. In short words the selling pressure drove the markets downward as buyers were just not to be found to bid stocks upward. Now, let's see if stocks can recover (anytime soon) and make new highs climbing the wall of worry.
If a good number of the issues get resolved this year then I have the S&P 500 Index climbing to around 3,000. If only a few of the issues get resolved then I'm looking somewhere around 2750 to be a good number. And, if we continue to roll around in the muck (so to speak) 2,500 will be looking pretty darn good.
Wishing all ... "Good Investing."
Old_Skeet
Speaking of crystal balls, here is an article that speaks to the problems economists are currently having when using their E model crystals balls to make predictions about the near term fate of the economy: