"Wealthy investors and the Fed have been propping up large companies. It can’t last."
"If the stock market doesn’t reflect the health of our economy, what does it measure? Most directly, it indicates the financial health of the richest among us. Overall, about 55 percent of Americans own stocks, according to Gallup, but ownership is heavily skewed toward the wealthy. According to Federal Reserve data, the top 1 percent of U.S. households own 39 percent of equities and mutual fund shares, and the top 10 percent own 83 percent — which leaves workers in the bottom 90 percent owning just 17 percent."Article Here
I agree that the stock market and the economy are distinctly separate entities. The economy is today while the stock market is about tomorrow. Time matters. Predicting tomorrow accurately is an impossible task given the interacting nature of our complex society with its never ending rules and unknowable rule changes. Folks confidence always changes in unforeseen ways. Good luck on any forecasting accuracy in this world. But over time the world has become a better place by most measures so investing positively in the future is not a bad generic policy. So I invest.
Best wishes to all, but especially to those who don’t have the resources to invest in the marketplace.
"A reckoning is coming" investing based on predictions isn't recommended.
Over the years we heard the following:
1) US stocks are over value, the rest of the world is undervalue. US stocks did better in the last 10 years.
2) The GMO team and Arnott have been wrong for 10 years.
3) Gundlach was way wrong when he predicted the 10 year will be at 6% in 2021
4) Bogle was wrong when he predicted stocks/bonds performance based on the past and averages.
5) Inflation and interest rates can only go up. Both wrong for years.
6) inverted yield signals recession = wrong. High PE, PE10 signal the end of the bull market...wrong again for years.
7) There is no way stocks will have a V recovery in March 2020 based on blah, blah, whatever...and they did.
8) The economy is bad, unemployment is high, the debt is huge = bad future stock market. The reality? Stocks are still up.
9) If Trump will be elected, it will be a disaster. Reality? stocks were up
10) New predictions a) The new president will be XXXX so do something now b) Covid-19 cases will be up c) China-US relations got worse
The Fed successfully managed to do all the above and why many "experts" were wrong
If you didn't get the message already, most investors should do nothing to very little. Predictions are a flipping coin. Some will be correct just because markets go sometimes down.
Is this a new thing? It's going on for decades. It's actually got better for main street because indexes + doing nothing worked so well. Wall St + other investment pros used to take more
Wall St and many companies have been playing with the numbers for many years. Example: how come the new earnings beat the estimates at 70+% every time?
What other choice do you have? Stay in cash/MM?
BTW, I don't follow my generic advice, I'm a trader and retired. When I see elevated risk (VIX > 35 + others) I sell a big % of my portfolio but I don't recommend it to anybody.
Another exception: I think the US market is the best long term market so just enjoy and invest. Many investors don't understand markets and think there is a high correlation between markets NOW to the economy, unemployment and others.
There’s always a reckoning coming. Greenspan spoke of irrational exuberance” in ‘96.
Vanguard sent out letters cautioning its investors that “trees don’t grow to the sky” in the late 90s. President GWB in ‘08 warned of “ ... a depression greater than the Great Depression.” Marc Faber, Jim Rogers, John Hussman. And so it goes. Bottom line: I want to make money. Not a lot. But a sum substantially greater than the meager returns available on cash. So, I’ll stay the course, ride the markets thru a diversified portfolio, go with the flow .... Maybe “tilt” this way or that for good reason - but no major changes based on the dozens of daily prophesies - often from writers who know less about it than you or I do.
I don't see any problem with having a plan to take profits and rebalance according to your situation and comfort level. That may not involve predictions. But it does mean selling from time to time. And doesn't that involve the estimation that while I could make more, I am happy with what I have made so far?
... I'm on a rant, so, get on with it... Once, speaking to a "Supervisor," I asked him: "why are there "pending" shares in the first place? Is it because you have too few people hired to do the record-keeping in a TIMELY manner?" And the phone went dead. Until I broke the silence, and said: "Alright, then. THAT'S clear." Good fund. But that whole business sucks dooky from shrews.
Sure, if you want to rant why not but a typical investor, including retirees, should do nothing (or very little if it makes them happier) and just follow their long term asset allocation based on their goals.
As a trader I'm not attached to any fund and their managers, I hired them as contractors to do a very specific job, if I find better choices I switch. Several funds I held for years and several just a few weeks.
It’s also interesting to look at the estimated sector earnings here: https://www.spglobal.com/spdji/en/documents/additional-material/sp-500-eps-est.xlsx?force_download=true
Seems to me the stock & bond markets can be totally divorced from Main Street. Certainly now that there is always the Fed put. Which is to Sa the Fed will always stop the markets from falling. Years ago I believed folk like David Stockman who said a day of reckoning was coming. Now I’m more inclined to believe FD1K.
12.3% invested in stock fund PRFDX, which follows a value investment approach (long out of favor) and has 21% invested in financial stocks which have struggled recently due to very low interest rates. PRFDX is off about 14.5% YTD.
16.5% invested in their high yield fund PRHYX, which is essentially flat YTD.
8% invested in their EM bond fund, PREMX, which is slightly negative YTD..
That makes well over one-third of its holdings either flat or underwater this year. Shouldn’t be any mystery than why it’s not keeping pace with most bond funds. The fund is not and does not pretend to be an investment grade bond fund. Considering the commitment to PRFDX, it’s hard to consider it a bond fund at all. In fairness, this has been an unusually good year for some sectors of the bond market - longer dated government and intermediate investment grade corporates for example. Don’t expect that outperformance to continue indefinitely.
That said, my thinking re allocation-type funds that make extensive use of bonds to hedge equity and lower credit holdings underwent some fundamental changes during / after the March 2020 market debacle (across many sectors). I am more concerned now that longer dated higher quality bonds (RPSIX does hold some) no longer offer a sufficient “offset” to riskier assets within the portfolio due to the extraordinary low interest rates they bear and an intensified Fed intervention in the credit markets. There is no easy way around the dilemma. For myself, I’ve added some risk on the equity end, added exposure to intermediate / short term bond funds, and reduced exposure to lower quality and/or longer dated bonds. Not a drastic revamp - just a gentle nudge in the direction indicated.
The above observation isn’t limited only to RPSIX. It applies to all multi-asset allocation funds with heavy bond exposure, including my long time favorite TRRIX. It’s not that the funds have changed, but that the underlying fundamentals have shifted. To some extent, Price acknowledged that change in fundamentals with the introduction of TMSRX a bit over a year ago. I’m more inclined today to say that that money you’re not comfortable committing to riskier credit instruments or equities might be better placed in a short term or ultra short bond fund while awaiting better opportunities.
The above observation isn’t limited only to RPSIX. It applies to all multi-asset allocation funds with heavy bond exposure, including my long time favorite TRRIX. It’s not that the funds have changed, but that the underlying fundamentals have shifted To some extent, Price acknowledged that change in fundamentals with the introduction of TMSRX a bit over a year ago. I’m more inclined today to say that that money you’re not comfortable committing to riskier credit instruments or equities might be better placed in a short term or ultra short bond bund while awaiting better opportunities.
Stay safe, Derf