The Washington antics - Well, just noise. What really matters is the price action and fundamental backdrop that is on display in the equity market. While the naysayers continue to raise doubts, fears and complete denial of the facts, the S & P , Russell 2000 and the Dow Transports all hit and closed at all time record highs.. The only laggard the Dow 30, primarily due to the underperformance of IBM, Goldman & UNH. While that is a bit of concern in the short term, the overall strength and breadth of this market moving to all time highs is remarkable.
All along this path to new highs we have heard the negatives , we will hear plenty more, BUT here's the backdrop I am looking at as we go into the final months of this year.
Round 1 of the Debt Deal is over until next Feb. Round 1 showed that its advisable to avoid the noise , I suggest we can put this on the shelf for a while. And when it resurfaces it will be more 'noise" & "fear mongering" . Might they behave a bit better since '14 is an election year?
There are no elections this fall. Congress will be on holiday recess most of the time and on their best behavior when put in the spotlight since their recent embarrassing antics.
Syria and associated nonsense is in the rear view mirror.
Janet Yellin is the new Fed Chair , no more uncertainty. they can talk or debate taper all they want - its a non issue until a pick up in employment. Geez, didn't Bernanke state that at the beginning ? I was suggesting no taper in '13 since July. Think Bernanke had it right with no taper in Sept. as he looked ahead and saw the Washington mess looming ? Well at the very least there should be less talk on this subject during the final quarter of '13.
Stock markets around the world are selling at fair to absurdly cheap valuations as Europe and emerging markets rebound and show signs of life.
The banks are as highly capitalized as they have ever been. I have been more than satisfied with their earnings to date.
Home prices are back to long-term trend and appreciation continues despite recent mortgage slowdown. US households reclaimed the 2007 peak in total net worth and have now surpassed it.
Small and mid cap stocks are at all-time highs and yet still under-owned by the largest pools of capital in the US - pensions, endowments and insurance companies.
Going back 110 years, when the Dow has been up in the first half, it's finished the year strong with gains in the back half 70% of the time. I've suggested in this blog & elsewhere that '13 has similarities to '95. On Oct 16 '95 the market was up 28.6% and finished the year up 33.5% with no correction more than 5% . Today we are up 22% with a close of ?? ... Largest correction 6% .... Thus suggesting there could be plenty of runway left for a higher close this year....
This fact really caught my attention - Hedge funds are at their highest net short positions since January. The HFRI Equity Hedge Fund Index advanced 9.2 percent in the first nine months of 2013 and is poised to trail the S&P 500 for a fourth year, according to data compiled by Bloomberg. Given that backdrop and applying hedge fund management 101 , they all have to play "catch up" if they want their fees and jobs or both .. and that equates to chasing equities for performance.. A market dynamic that many don't understand or appreciate.
THAT is the 'set up" as we move towards year end.. It's certainly not the crazy negatives and nonsense still being spouted by those that have had this market wrong and continue to be on the sidelines..
What happens from here? Plain and simple ; We have all the ingredients to keep this rally going into year end.
My secular Bull theory lives on onto '14 ---Many still don't believe , clients that have been in cash still have no interest. Despite the fact that 2013 has been the broadest rally in at least 23 years. Data compiled by Bloomberg reveals of S&P 500 members, 445 are up so far in 2013. The next-closest year was 1997, when 436 companies had advanced and the index was quadrupling.
Short ratios tracked by ISI are about the same as they were in August 2011, the last time the U.S. was threatened with a credit default due to a budgetary impasse in Congress. Simply put, The advance has breadth & There is plenty of doubt for this rally to feed on ..
Since the "headlines " haven't taken down this market the "bears" will roll out the "Bubble & overvaluation talk" as a continuing cry for a "crash". The bears play that theme and make comparisons to 1999 which is absurd... The facts don't support that at all..
In 1999 the S&P finished at 1469, earned $53 per share, and paid out $16 in dividends. The 2013 S&P 500 is earning double that amount - over $100 per share. The index will also be paying out double the dividends this year, more than $30 per share, and returning even more cash with record-setting share repurchases. So one would think we are paying a big premium for the doubling of earnings & dividends.. Quite the opposite , we're paying a discount. 50% off. The current S&P 500 trades for a PE of 15 - 16 versus 33 in 1999. So double the fundamentals for half the price. That isn't frothy , overvalued or bubbly to me ..& it certainly ISN'T 1999.
The naysayers and tactical guys will now point to inflation-adjusted measures to convince you that it's not a record high but it is, and rest assured the profits are real . The newsletter guys will say its all the Fed as they have been for five years now and the TV talking heads will obsess over every headline that comes our way distracting many from what is really going on.
Part of my strategy has been to meld my ideas with the advice of those who have been 'correct" on this market to produce results and build wealth. Stop, look and question those who have been wasting investors time and distracting all from what is really going on here. Those that have been "wrong" ,yet continue to fill peoples heads with nonsense. (i.e zerohedge) have been wrong for years. Is there ANY reason to follow them now ? There is an abundance of free advice available from those that have been correct (I.E bespoke group,etc.)
Just some thoughts for '14 ; S & P earnings are estimated to come in at $110 , so at S & P 1745 we are about at 16 times earnings. Estimates for '14 are quoted @ $120. . Put a 15 - 16 multiple on that and we have S & P 1900 ... If we add any PE multiple expansion as some suggest we have much higher targets.. Thus my continued stance that this secular bull market trend continues into '14 .
I 'm not suggesting to throw caution to the wind , but merely suggest that the major trend is still in place and it is decidedly UP. While I remain bullish , its all about earnings and buying opportunities as they are presented.. I don't want to "chase" at these levels , but rather pick my spots as I did recently with CVX,XOM, JPM & TGT., all quality div. growth names at reasonable prices.. All bought during the "debt crisis" ... Documented here on this blog.. Sector rotations have been in place and individual names have come down 10% or more into a "buying" range. Cyclicals look on the verge of a breakout (CAT, JOY). FCX & VALE in the material sector represent value & yield, and could also be poised for an up move..
Staying the course - Stocks for consideration & Due diligence.. GS,EBAY,IBM. All beaten up on earnings. More on one or all of them next week.
Best of luck to all..
Additional disclosure: I am long numerous equity positions . Complete list can be seen here in this blog.. I am short GOLD