“A sluggish economy, political gridlock, tepid earnings, the European debt crisis, high gasoline prices…” I can’t really argue with Barron’s depiction of the current market environment yet, against all these seemingly negative conditions, the stock market keeps surging higher. Can it possibly continue, though?
So writes Louis Basenese (www.wallstreetdaily.com) in edited excerpts from his original article* entitled Seven Reasons to Expect a Record-Breaking Year for Stocks.
This article is presented compliments of www.FinancialArticleSummariesToday.com (A site for sore eyes and inquisitive minds) and www.munKNEE.com (Your Key to Making Money!) and may have been edited ([ ]), abridged (…) and/or reformatted (some sub-titles and bold/italics emphases) for the sake of clarity and brevity to ensure a fast and easy read. Please note that this paragraph must be included in any article re-posting to avoid copyright infringement.
Basenese goes on to say in further edited excerpts:
Yesterday, I produced some statistical backup, which tells us that the answer is “yes.” (In case you missed it, you can gain enlightenment here.) Today, it’s time to focus on the fundamentals.
Sorry, bears. They point to higher prices ahead, too. All seven of them. Take a look:
Bullish Fundamental #1: ‘Tis the Season
As fate would have it, the Dow and S&P 500 Index are approaching record highs at precisely the right time of the year…[because] March and April happen to be strongly positive months for the market. In fact, they represent “the best two-month combo” over the last 20 and 50 years, based on Bespoke Investment Group’s calculations. More specifically, over the last 20 years, the Dow has been up 70% of the time in March and April – for average gains of 1.2% and 2.71%, respectively.
So, bears, I have a question for you: “Do you feel lucky” because that’s what it’s going to take to overcome the momentum and seasonality working in stocks’ favor right now.
Bullish Fundamental #2: It’s All About Earnings, Stupid
By now you probably cringe when I say it but it doesn’t change the fact that stock prices ultimately follow earnings – and they’re still going up.
In the fourth quarter, S&P 500 companies reported earnings growth of 4.2%, compared to analysts’ estimates of 2.6%, according to FactSet and for the year ahead, analysts expect profits to grow a respectable 8.2%.
Bullish Fundamental #3: Time to Get Sentimental on You
Normally a bull market inspires optimism on the part of individual investors but the financial crisis and ensuing market collapse left scars – horrific scars – that are clearly preventing individual investors from embracing stocks for any sustained period of time. Even as prices approach near record highs. I say that because it only took a few down days in the market for investors to abandon their optimism.
Case in point: The weekly bullish sentiment reading from the American Association of Individual Investors (AAII) plummeted over 13 full points last week, to 28.39. That’s the biggest weekly decline in over two years. Ironically, plunging sentiment is a bullish indicator for the stock market and when bullish sentiment drops below 25% during this bull market – which has happened seven times so far – stocks rallied over the next three and six months every time (except once).
Long story short: Keep an eye on this week’s sentiment reading. If it dips below 25%, we should treat it as a reliable (contrarian) “Buy” indicator.
Bullish Fundamental #4: Underinvested, Anyone?
The time to worry about a market top is when everyone is invested in the stock market. That is, when stocks become a crowded trade – and that’s not even close to happening.
Consider: U.S. private pensions have only 35% of their assets in stocks, compared to the long-term average of 45% and, as for individual investors, they’re being told to stay underinvested, too.
The latest reading of Bank of America’s Sell Side Consensus Indicator came in at just 45.2%, compared to a long-term average of about 61% and an all-time low of 43.9%.
Bullish Fundamental #5: Less Joblessness = Higher Stock Prices
We’ll save the debate over whether or not we can trust government employment figures for another day. Today, let’s focus on the undeniable fact that initial jobless claims exhibit a strong inverse correlation with stock prices.
Historically, as claims dip, stocks rally (see here for pictorial proof) and guess what – claims keep dropping. In the last week, initial claims dropped 22,000 to 344,000. The lower they go, the higher we can expect stocks to rise.
Bullish Fundamental #6: “Price is What You Pay. Value is What You Get.”
Long-time investors are bound to recognize the above quote from Warren Buffett. Well, Mr. Buffett still believes that stocks represent a good value recently telling CNBC, “We’re buying stocks now but not because we expect them to go up but because we think we’re getting good value for them” and the data validates his assessment: the Dow currently trades at 12.6 times forward earnings, compared to its median valuation of 17.2 times over the last two decades, while, the S&P 500 trades for 14.5 times trailing earnings.
If the bull market ended now, it would be the cheapest valuation at a market top in history, according to LPL Financial’s Jeffrey Kleintop. In 2007, the S&P 500 peaked at 16.8 times earnings and at the end of the tech bubble, the earnings multiple reached almost 30 times earnings.
So, yes, even though it sounds illogical, stocks have been going up in price for four years, but haven’t gotten expensive.
Bullish Fundamental #7: Bet on Bernanke
“Central bankers rather than politicians are the dominant driver of asset prices,” says Bank of America’s Chief Investment Strategist, Michael Hartnett….The Fed still holds the key to the end of this bull market and it has no intention of letting up on the money printing yet so, instead of fighting stock market prosperity which is being bolstered by monetary policy, embrace it
Bottom line: Records are made to be broken and I don’t care if the current bull market is getting a little long in the tooth as it enters its fifth year. Given the current fundamentals, it’s destined to keep charging and set a new record. So don’t miss out!
Ahead of the tape,
Editor’s Note: The author’s views and conclusions are unaltered and no personal comments have been included to maintain the integrity of the original article. Furthermore, the views, conclusions and any recommendations offered in this article are not to be construed as an endorsement of such by the editor.
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The mainstream financial press would like us to believe that because the S&P 500 and Dow 30 are at or near their record highs that it must mean we’re nearing the end of the current bull market and, as such, now must be a terrible time to buy stocks. Let’s not jump to any conclusions, though. Instead, let’s do our own due diligence to find out. Hint: If you’ve been stuffing cash under the mattress since the last market crash, you might want to finally go deposit it in your brokerage account. Here’s why… Words: 420
It’s that time again. The Dow surpassed its all-time high and the S&P 500 is not that far from the tops of 1553 on March 24, 2000 and 1576 on October 9, 2007. Just as in 2000 and 2007, the economic, valuation and political background does not support the budding euphoria. [Let us explain precisely why that is the case.] Words: 680
Since the late 1800′s, the Dow has experienced three periods where it traded sideways, ranging from 13 to 17 years, [which always] resulted in upside breakouts . The S&P 500 finds itself within a few percentage points of where it was 13 years ago [so the question is “Has the time now come for the Dow and S&P 500 to once again go Up, UP and Awaaay?” Let’s take a look at some charts.] Words: 299; Charts: 2
As we all know, money printing always leads to inflation. It’s just a matter of figuring out which assets get inflated. This time around gold is not the only beneficiary, stocks are, too, and I’m convinced that the chart below holds the key to the end of the bull market. Words: 475; Charts: 1
The Swimsuit Issue Indicator says that U.S. equity markets perform better in years when an American appears on the cover of Sports Illustrated’s annual issue as opposed to years when a non-American appears on the cover. [What is the nationality of this year’s cover model? Can we expect returns above the norm or will we see a year of underperformance for the S&P 500 this year? Read on.] Words: 323 ; Table: 1
Ever since the Dow broke the 14,000 mark and the S&P broke the 1,500 mark, even in the face of a shrinking GDP print, a lot of investors and commentators have been anxious. Some are proclaiming a rocket ride to the moon as bond money now rotates into stocks….[while] others are ringing the warning bell that this may be the beginning of the end, and a correction is likely coming. I find it a bit surprising, however, that no one is talking of the single largest driver for stocks in the past 4 years – massive monetary base expansion by the Fed. (This article does just that and concludes that the S&P 500 could well see a year end number of 1872 (+25%) and, realistically, another 28% increase in 2014 to 2387 which would represent a 60% increase from today’s level.) Words: 600; Charts: 3
As Winston Churchill once said: “A pessimist sees the difficulty in every opportunity; an optimist sees the opportunity in every difficulty” and in that vain I challenge all readers to fight off the negativity, see long-term opportunity in global equity markets and, most importantly, remain invested. Your future self may thank you. Words: 732; Charts: 6
While I remain cautious on stocks and the risk trade, the technical picture shows that the uptrend to be intact and the bulls should still be given the benefit of the doubt for now. At this point, any call for a correction is at best conjecture [as evidenced by the following 4 indicators]. Words: 399; Charts: 4
The Dow has surpassed its all-time record high – set in October 2007 – and the S&P 500 is not far behind? Is this the early stage of another great bull market? Let’s look back at the two previous times when the S&P 500 set new all-time highs and see if we can learn something. Wait…first put your “this time it’s different” glasses on. OK, let’s go. Words: 430; Charts: 1
The S&P500 is likely to achieve a secular (long term) peak this month, then drop to the 500s by July-August 2013. This article explains why. Words: 180
History shows that when investors experience a rapid decline in the amount of available cash in their brokerage account to spend/invest quickly such “negative net worth” leads to major corrections in the stock market. Currently such is the case so can we expect another such decline or will it be different this time?
The S&P 500 is on its way to building a “Domed House” and to challenge multi-year highs, or even all-time highs, in the process. Based on the forecast of my proprietary Long Wave Index, the broad market should be in a short-term bullish time-window until March 21st/13 by which time the “roof” phase of the formation should be complete with the S&P 500 having reached a projected peak of 1570. Words: 634; Charts: 4
I don’t relish the job of constantly pointing out the risks to the equity markets but since few on Wall Street seem willing (or able) to do this, I’m “making the call” for a market correction, as enough variables have aligned to indicate a high likelihood of stocks heading downwards from here. Words: 1203; Charts: 6
The stock markets make no sense. They have literally lost touch with reality. Divergences between fundamentals, confidence and the valuation of markets are large [and, as such,] cannot last for long….The only question is how…and how quickly….this correction occurs. Words: 261
You need to stay in markets despite an impending economic collapse. [Really?! Yes, really.] Normally such an expectation would be addressed by getting out of the way of the oncoming disaster and taking ones chips off the table [but,] in this situation, there is no place to hide. Low-risk assets, like bonds and near-cash, produce little to no return…and the threat of rising interest rates and inflation make them dangerous. Higher risk assets are unavoidable, given current conditions. [Let me explain further.] Words: 830
Most everything you’ve heard about investing from the mainstream media, your mutual fund advisor and your tax accountant is a lie. You’ve been told…that the entire point of portfolio diversification is to mitigate downside risk yet when the market experiences the inevitable decline, every sector pushes significantly lower – and your “diversified” portfolio suffers as a result, [right? Well, there IS a better way.] Hear me out. Words: 895
Key stock indices are becoming significantly overpriced. The value of the U.S. stock market stands at about 133% of GDP. The average for the past 60 years has been around 82%. By this measure, the U.S. stock market is overvalued by more than 50%! Words: 398
Investors are more bullish now than at any time since 2002 but the current rally has not been fueled by improved prospects of actual growth and wealth creation. Instead, it’s mostly due to:
- investors desperate for income denied them elsewhere by central bank policies;
- printed stimulus cash seeking a home and
- sheer technical momentum
but nowhere do they seem to be considering market risk – the risk that your investment will lose value because it gets dragged down in a falling market. Words: 615
What you are about to read below is startling. Every time that the market has fallen in recent years, insiders have been able to get out ahead of time… [What] is so alarming [this time round is] that corporate insiders are selling nine times as many shares as they are buying right now. In addition, some extraordinarily large bets have just been made that will only pay off if the financial markets in the U.S. crash by the end of April. So what does all of this mean? [Could it be that they] have insider knowledge that a market crash is coming? Evaluate the evidence below and decide for yourself. Words: 570
At some point we are going to see another wave of panic hit the financial markets like we saw back in 2008. The false stock market bubble will burst, major banks will fail and the financial system will implode. It could unfold something like this: Words: 660
New year festivities have continued on the stock market even as the Christmas trees have been put away. The “death of the fiscal cliff,” not horrible job numbers and supportive comments from Mario Draghi on the other side of the pond have led to bold and bullish behaviors over the last three weeks. While no one can predict the exact peak, here are five reasons you’re better off on the sidelines than in the market.
J.P. Morgan Asset Management has developed a chart showing the past two cycles in the S&P 500 highlighting peak and trough valuations. At face value it is very alarming as it suggests a potential decline of somewhere in the vicinity of 60% over the next year or two and concurs with previous innovative trend analyses included in this article. Charts: 4
Based on the latest S&P 500 monthly data, [my analyses indicate that] the market is overvalued somewhere in the range of 33% to 51%, depending on which of 4 indicators I used. This is an increase over the previous month’s 31% to 48% range. [Let me explain the details.] Words: 475
Goldman Sachs reports their Global Economic Indicators (GLI) show the world has re-entered a contraction and…is predicting a market crash worse than that of the early 90′s recession and one slightly less than the sell-off at the turn of the millennium. [Below are graphs to support their contentions.] Words: 250
Mark Spitznagel…warned the other day that the S&P 500 could lose 40% of its value in the next couple of years. So what black swan event could cause the S&P 500 to drop down to 760? [Let’s take a closer look.] Words: 856