More Upside in International Stocks

The continued grind of the bull market may not be justified, according to an article in this week’s Investment News. In fact, the article, written by Joe Smith, senior market strategist at CLS Investments, argues the positive data points currently baked into the market—a dip in unemployment, improved corporate sales and earnings, additional consumer spending—don’t necessarily indicate a “positive view for investors in the U.S.” Domestic stocks, it asserts, look expensive compared to those overseas, and management initiatives to cut costs and increase share buybacks (rather than focusing on operating growth and/or reinvestment) have driven improvements in corporate earnings. “With cheap […]

U.S. Stocks Show Increased Global Footprint

The post-election market rally coupled with the strength of the U.S. dollar has increased the share of U.S. stocks as a percentage of the global economy, according to this week’s Wall Street Journal. FactSet data reflect the market capitalization of U.S. stocks at approximately $25 trillion last Friday, a figure that represents 40% of the value of global equities, the article says—the highest level since 2006. “Investors and traders have largely interpreted the president-elect’s policy priorities as likely to benefit U.S. businesses,” the article states, “particularly his plans to cut corporate taxes and increase fiscal stimulus. Also, bets on higher […]

A Buffett Market Valuation Indicator

There is a mixed bag of outlooks concerning the current bull market and its staying power. In an article posted yesterday on CNBC.com, Validea CEO John Reese describes one metric used by Warren Buffett to gauge conditions on the ground and signal where things might be headed. The Buffett mantra of focusing on business fundamentals rather than hearsay transcends to today’s prickly political landscape. Reese writes that the Berkshire Hathaway CEO believes the “performance of companies over time is what drives those stock returns, not necessarily who wins the race for the presidency.” That said, he does believe in paying attention […]

Is Shiller’s CAPE as Scary as it Seems?

In the 1990’s, economists Robert Shiller and John Campbell created a valuation metric called the “cyclically adjusted price-earnings” ratio, or CAPE. A Wall Street Journal article from earlier this month examines whether this metric might be sending a false signal that the market is overheated. The CAPE ratio values shares based on 10 years rather than one year of earnings which, the article explains, “smooths out periods like just prior to the housing bust, when unusually strong earnings made stocks look reasonably priced, and post-recession recoveries, when weak earnings make stocks look expensive.” The CAPE is now at 27, about […]

Hulbert Highlights Indicators of an Overvalued Market

There are six strong reasons why today’s bull market is on “weak legs” according to Mark Hulbert in a MarketWatch article from earlier this month. He offers the following chart to illustrate that the current stock market is “more overvalued than it was at 79% to 95% of bull market peaks dating back to 1900”: Hulbert comments on current indicators including the following: Price-book ratio of 2.8 is higher than it was during 23 out of 29 of the major market peaks since 1920; Price-sales ratio of 1.9 is higher than it was during 18 of the 19 peaks since […]