It’s Not All Good News for This Record-Setting Market

Ted

FYI: Two thousand nineteen isn’t even a third over and it’s already shaping up as a great year for the financial markets. The S&P 500 index and the Nasdaq Composite both ended the week at record highs, a big reason that global equity markets have gained $10 trillion in value since the turn of the year, with global credit markets kicking in another $2 trillion to investors’ wealth, by the reckoning of Torsten Slok, chief economist at Deutsche Bank Securities.

At the risk of propounding American exceptionalism, U.S. markets have handily outdistanced the rest of the world. Using exchange-traded funds to illustrate, the SPDR S&P 500 ETF (ticker: SPY) posted a total return (including dividends) of 16.73% for the year through Thursday, according to fund tracker Morningstar’s data. The Invesco QQQ Trust (QQQ), which tracks the biggest stocks in the tech-heavy Nasdaq, returned 23.7%. Venturing abroad paid less well. The iShares MSCI EAFE ETF (EFA), which tracks the major non-U.S. developed markets, returned 12.59%, while the iShares MSCI Emerging Markets ETF (EEM) returned 11.9%.
Regards,
Ted
https://www.barrons.com/articles/intel-and-3m-are-among-the-losers-in-this-record-setting-market-51556325767

Derf

Unfortunately the fat lady hasn't begun to sing. Anyone using this up tick as a reason to take some profit ?
Derf

Old_Joe

"The fat lady hasn't begun to sing."

@Derf- Do you know where that particular saying comes from? (Maybe I should ask "Are you old enough to know...")

Derf

@Old_Joe; I DuckDuck Go-ed it,& seems to be some confusion on where it comes from.
Have a pleasant Sunday, Derf

hank

Derf said:

Anyone using this up tick as a reason to take some profit ?

Interesting question. But why are you calling today’s market conditions an “uptick” ? U.S. equity markets today have barely clawed their way back to where they were 6-12 months ago. “Rebound” or “recovery” might better describe today’s market. @Derf, I share your apprehension. While I don’t have access to the Barrons story, I suspect it’s bearish in sentiment. Problem is: These warnings are becoming like a “broken record”. (For those too young to remember vinyl, “broken record” was a phenomenon characterized by the unstoppable repetition of a few notes or words - over and over again.)

Read virtually any respectable financial publication from Barrons to the MFO Monthly Commentaries over the past 8-10 years and you’ll find warnings about overvaluation, lofty levels, dangerous markets, overbought markets, over exuberance, etc.. Yet, had you heeded those warnings 3, 5 or 8 years ago and moved to ultra-safe investments like cash and limited duration bonds you’d likely have been left standing in the dust along the road as markets marched higher.

Does this make me optimistic going forward? No - not in the least. But something isn’t adding up when you compare the decade old flood of warnings about valuations alongside actual U.S. stock market performance over the same period. One possibility (but only a possibility) for those fixated on indexes is that the 10-year steady march higher since 2009 will eventually be erased by a sudden, rapid, downward spiral in valuations. Let’s hope that doesn’t happen. Should it occur, however, it might make the roughly 18 months slide from late ‘07 to early ‘09 look like a Sunday picnic.*

I don’t get paid to give investment advice here, so offer none. I share your concerns and I’ve done what I can to lower overall risk in how my retirement monies are invested - appropriate to age and a 10-20 year time horizon. But there are no guarantees. And, whatever plan / course one decides on, it needs to be tailored to age and circumstances. @Derf, I realize this does nothing to satisfy your concerns. But thanks for the question anyway.

*From its peak in 2007 to its low in 2009, The S&P 500 Index fell roughly 50%.
https://www.frbatlanta.org/cenfis/publications/notesfromthevault/0909

Junkster

hank said:

Derf said:

Anyone using this up tick as a reason to take some profit ?

Interesting question. But why are you calling today’s market conditions an “uptick” ? U.S. equity markets today have barely clawed their way back to where they were 6-12 months ago. “Rebound” or “recovery” might better describe today’s market. @Derf, I share your apprehension. While I don’t have access to the Barrons story, I suspect it’s bearish in sentiment. Problem is: These warnings are becoming like a “broken record”. (For those too young to remember vinyl, “broken record” was a phenomenon characterized by the unstoppable repetition of a few notes or words - over and over again.)

Read virtually any respectable financial publication from Barrons to the MFO Monthly Commentaries over the past 8-10 years and you’ll find warnings about overvaluation, lofty levels, dangerous markets, overbought markets, over exuberance, etc.. Yet, had you heeded those warnings 3, 5 or 8 years ago and moved to ultra-safe investments like cash and limited duration bonds you’d likely have been left standing in the dust along the road as markets marched higher.

Does this make me optimistic going forward? No - not in the least. But something isn’t adding up when you compare the decade old flood of warnings about valuations alongside actual U.S. stock market performance over the same period. One possibility (but only a possibility) for those fixated on indexes is that the 10-year steady march higher since 2009 will eventually be erased by a sudden, rapid, downward spiral in valuations. Let’s hope that doesn’t happen. Should it occur, however, it might make the roughly 18 months slide from late ‘07 to early ‘09 look like a Sunday picnic.*

I don’t get paid to give investment advice here, so offer none. I share your concerns and I’ve done what I can to lower overall risk in how my retirement monies are invested - appropriate to age and a 10-20 year time horizon. But there are no guarantees. And, whatever plan / course one decides on, it needs to be tailored to age and circumstances. @Derf, I realize this does nothing to satisfy your concerns. But thanks for the question anyway.

*From its peak in 2007 to its low in 2009, The S&P 500 Index fell roughly 50%.
https://www.frbatlanta.org/cenfis/publications/notesfromthevault/0909

Absolutely super post Hank. One that younger investors should save as a reference.

catch22

@Derf
Agree, with @hank
There has been an uptick relative to the large whack of Dec. 2018, and those doing dollar cost averaging via 401k, etc. should do okay going forward.
However, I do review/watch what is shown in the below chart.
The chart starts at about the first trading day of 2018; and I use SPY and ITOT to generally look at U.S. large cap, although ITOT has some mid/sm. cap. The NYSE reference is more broad based U.S. cap sizes. The IXUS is global and doesn't include U.S.

NOTES: ITOT is about 80% large cap and contains about 3,300 holdings. IXUS is about evenly split between Asia and Europe regions representing 88% of the 3,200 holdings.

>>>Indeed, there remain some decent sectors returns, as well as those drifting about.
Much of the "up" bump in some etf's and active funds can thank the broad tech. sector and whatever the percentage inclusion may be in a given fund for some of the gain.
Many bond styles remain fairly strong at this time, as well. The 1 year Treasury currently has a higher yield than the 30 year.
IMHO, a lot of varying opinions must be in place to find the equity and bond worlds in their current state.

Chart

Old_Joe

@Derf- Not to detract in any way from the excellent comments above, but as a bit of minor television history- in the early days of black and white tv (early 50's) there was a very large woman named Kate Smith who had a variety show of sorts... can't remember what, exactly. The unique thing though was that she always ended her show by singing a rather cloying rendition of "America the Beautiful".

Some place in there people began using "The fat lady hasn't sung" to mean that something wasn't over yet, with a joking reference to Kate Smith. By the way, since that whole image is currently politically very incorrect, you won't find that particular explanation in the Wickipedia version.

Derf

@Old_Joe; Check this out; What’s the story behind those Kate Smith songs with racist lyrics?
Derf

Sven

I'm comfortable with my asset allocation. Noted the uptick in the market while the economy is slowing globally at the same time. No radical changes, but rebalanced to more bonds recently.

Derf

Greeting from a April 28 /th Winter wonderland.
Hank well put. Instead of posting what are you buying , selling , or caught in the headlights. I went in a different direction somewhat.
I realize most followers here have different approaches to investing, different strokes for different folks!!
Anyhow the comments were appreciated.

Good investing to all, Derf

davidrmoran

sure looks like an uptick to me, and the wisest writers I read do not speak of any sudden drop / erasure but simply unlikelihood to have rise ahead, in other words flatter results more probable than anything else

'till the fat lady sings' is usually understood to come from opera, in particular brunnhilde at the end of wagner's twilight of the gods, long before kate smith

Old_Joe

Yeah, that's what Wickipedia says. All I can tell you is what I remember as a kid- the expression was never heard in our lower middle class social strata until Kate and TV. I doubt that Wickipedia had a lot of input from that particular social cohort.

davidrmoran

lots of parents

https://www.phrases.org.uk/meanings/it-aint-over-until-the-fat-lady-sings.html

the Kate one is by far weakest, as it says, on account of sense

no one mentions Groucho, I see

johnN

Lots pundits stating no doubt another large recession likely occur 6 to 36 months... We don't really know exactly when

So if you are doing well/near retirement and thinking time to bail out, extremely happy w previous 10+years profit then maybe best time to get out..

I reduced mother portfolio to 30%equities and 70% bonds fixed-income recently

Old_Skeet

@JohnN: Within the 30% equity / 70% bonds portfolio ... I take it ... This portfolio is fully invested with no cash? Why a no cash position?

Investor

I am a bit cautious with the market. For someone with the time horizon of mine I am holding significant cash but as the equity portion grows that part is getting smaller. I have eliminated some marginal funds and kept the proceeds in cash.

johnN

hi sir @Old_Skeet ...corrections: it's her 401K in fidelity [largest equity holding is fidelity contrafund]. She has large portions of cash in boa /chase that was not account for, she also has 2 houses being rented house, my brother help manage her other assess and I dont really know the exact amount. she may indeed has large amount of cash that is not accounted for { ~?! maybe 15 or 20% cash if account all together}

Old_Skeet

Hi johnN: Then she really has a broader asset based investment portfolio (more than a 30/70) cosnsiting of four asset classes. I'm thinking cash, bonds, real estate and stocks? My late father's asset allocation was 25% cash and cds ... 25% bonds (munis) ... 25% stocks (mostly dividend payers) ... and, 25% real estate.

hank

For Perspective:

“The Dow Jones Industrial Average's highest closing record is 26,828.39, set on October 3, 2018. It followed a record set the previous day.” https://www.thebalance.com/dow-jones-closing-history-top-highs-and-lows-since-1929-3306174. On Friday the DJI closed 26,542. That put it 287 points below where it was roughly 6 months earlier. Call it an uptick if you like. For anyone with longer than a 6 months time horizon, the market, as measured by the DJI, is still in recovery mode following the late 2018 selloff.

Massive downward spirals in markets are exceedingly rare. I’m aware of only 2 in this country during the past 90 years that reached or exceeded the 50% range (‘29-‘32 and ‘07-‘09). In addition, Japan’s Nikkei may be worth a look. In 1989 that index, in a developed market with an economy second only to the U.S. at the time, peaked at 38,916. 30 years later it rests at 22,259.

No intent by me to shape anyone’s views one way or another. My recent shift to a static allocation model with only occasional rebalancing has distanced me from the daily / seasonal market gyrations. It’s more boring, potentially less profitable, but also reduces the danger of shooting myself in the foot.

Junkster

There is nothing more positive than skepticism amid rising prices. I would be more worried if this market was more embraced and investors were much more enthusiastic. I can’t predict any better than anyone else. But the momentum coming off the December lows was among the fourth greatest of the past 60 years. August 1982 and March 2009. We saw how much higher the market went over the ensuing years. Strength begets strength. The problem is the other was January 1987 and we also know what occurred 9 months later.