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INCLINE VILLAGE, Nev. — “As goes January, so goes the market.” That popular saying was made famous by Yale Hirsch, author of The Stock Trader's Almanac. Let's hope he's right; the market had a good January.
The late John Templeton, looked at the bigger picture. He said, “Bull markets are born in pessimism, grow on skepticism, mature on optimism and die of euphoria.” The great bull market that started in 1982 (with the Dow under 700) began amid the most severe recession since the 1930s with double-digit readings for unemployment, inflation and interest rates. Of course, people were deeply and irrationally pessimistic. The bull market grew despite (or because of) people's skepticism, then the bull market matured during the growth years of the 1990s. Its peak coincided with (or was caused by) the euphoria over tech stocks in 1999 and early in 2000.
The current bull market began when the S&P 500 touched 666 in March of 2009 during the dark days of the financial crisis. The market had reached what Sir John liked to call the “moment of maximum pessimism,” which he said signaled the best buying opportunity. Many investors have remained skeptical even today. The S&P is now near 1300 and heading higher. I'm guessing Sir John would put us on the cusp between pessimism and skepticism today. That would be good news for investors.
Until politics, European debt worries, Iran, etc. took center-stage, investing was all about earnings and interest rates. Those are keys to the bull case even now. Stocks are trading for about 12 times earnings and interest rates are at rock-bottom levels. Traditionally, lower interest rates meant higher price-earnings multiples. Not now ... at least not yet. I expect multiples to expand a little while earnings themselves grow to $104-106 for the S&P 500 this year.
But politics and worries about European debt, growth in China, Iran and more are pushing to the back-burner the bull case based on earnings and interest rates. This we can say now: stocks are cheap based on what has always mattered most, and their low valuations will limit the downside even if other factors deteriorate.
Income investors need to think outside-of-the box because Treasury funds and most bond funds offer so little. With the Fed indicating that interest rates will remain low until late 2014, better-yielding stocks, utilities, emerging market debt, and bank loan funds will continue to do well.
— David Vomund is an Incline Village-based fee-only money manager. Information is found at www.ETFportfolios.net or by calling 775-832-8555. Clients hold the positions mentioned in this article. Past performance does not guarantee future results. Consult your financial advisor before purchasing any security.
The late John Templeton, looked at the bigger picture. He said, “Bull markets are born in pessimism, grow on skepticism, mature on optimism and die of euphoria.” The great bull market that started in 1982 (with the Dow under 700) began amid the most severe recession since the 1930s with double-digit readings for unemployment, inflation and interest rates. Of course, people were deeply and irrationally pessimistic. The bull market grew despite (or because of) people's skepticism, then the bull market matured during the growth years of the 1990s. Its peak coincided with (or was caused by) the euphoria over tech stocks in 1999 and early in 2000.
The current bull market began when the S&P 500 touched 666 in March of 2009 during the dark days of the financial crisis. The market had reached what Sir John liked to call the “moment of maximum pessimism,” which he said signaled the best buying opportunity. Many investors have remained skeptical even today. The S&P is now near 1300 and heading higher. I'm guessing Sir John would put us on the cusp between pessimism and skepticism today. That would be good news for investors.
Until politics, European debt worries, Iran, etc. took center-stage, investing was all about earnings and interest rates. Those are keys to the bull case even now. Stocks are trading for about 12 times earnings and interest rates are at rock-bottom levels. Traditionally, lower interest rates meant higher price-earnings multiples. Not now ... at least not yet. I expect multiples to expand a little while earnings themselves grow to $104-106 for the S&P 500 this year.
But politics and worries about European debt, growth in China, Iran and more are pushing to the back-burner the bull case based on earnings and interest rates. This we can say now: stocks are cheap based on what has always mattered most, and their low valuations will limit the downside even if other factors deteriorate.
Income investors need to think outside-of-the box because Treasury funds and most bond funds offer so little. With the Fed indicating that interest rates will remain low until late 2014, better-yielding stocks, utilities, emerging market debt, and bank loan funds will continue to do well.
— David Vomund is an Incline Village-based fee-only money manager. Information is found at www.ETFportfolios.net or by calling 775-832-8555. Clients hold the positions mentioned in this article. Past performance does not guarantee future results. Consult your financial advisor before purchasing any security.
