There’s a lot swirling about under the overarching theme of markets moving higher. We think it’s important at times like these to pay attention not only to what is being said and written, but very importantly, to revisit what’s most important to you as an investor. Here’s a couple of comments that we think are important. Albeit with differing opinions…
- Warren Buffet said, “ Stocks actually are on the cheap side compared with historic valuations.”
- According to David Rosenberg, Chief Economist and Strategist at Gluskin Sheff & Associates, who spent seven years at Merrill Lynch as Chief North American Economist, “The market is the most expensive it has been in 15 years, and based on my work, you have 30% to 40% earnings growth priced in.”
As an investor, you can see the dispersion of viewpoints in the two quotes just from the past week from two well-known sources, a famous investor and a well-known economist. Let’s add to it, on Wednesday of last week…$8.2 Billion dollars of new money was invested in the SPY (State Street Corp. SPDR S&P 500 ETF, the markets oldest and largest exchange traded fund), with $9.8 Billion invested in equities in total for the week.
The market seems to continue to be fueled not only by the now deemed “Trump” rally, but we think it’s also more likely to continue to be fueled by the Fed Speak, or in other words, the bias toward raising rates.
You may recall there is an inverse relationship to bond prices and bond yields, as rates rise, prices fall. Recall that a bond’s sensitivity to interest rates is measured by its duration. Remember, the longer the duration, the more sensitive a bond’s price to changes in interest rates.
The Fed may get its wish and the interest rate curve steepen, meaning that as the Fed raises the Fed Funds rate (the short-end of the curve) the bond market cooperate’s by allowing the long-end to move up with it. While this may not be overly concerning for investors who can hold their diversified portfolio of bonds until maturity, for many who own longer duration bond funds, the concern for the potential loss of principal, we believe, will push more money into stocks.
With this in mind, quotes like the one from this week’s Barron’s that states, “Bulls are piling into the market’s elevator car. When the doors close, they may hear, Going down”, are in strict opposition to the $Billions moving into the equity ETF – SPY. We share this reminder, as Mark Twain so eloquently put it, “I am more concerned with the return of my money than the return on my money.” It may be a good time to revisit, “What’s most important to you?”
Important Note: The views expressed in this post are as of the date of the posting and are subject to change based on market and other conditions. This post contains certain statements that may be deemed forward-looking statements. Please note that any such statements are not guarantees of any future performance and actual results or developments may differ materially from those projected.
Please note that nothing in this post should be construed as an offer to sell or the solicitation of an offer to purchase an interest in any security or separate account. Nothing is intended to be, and should not be taken to be, investment, accounting, tax or legal advice. If you would like investment, accounting, tax or legal advice, you should consult with your own financial advisors, accountants or attorneys regarding your individual circumstances and needs. No advice may be rendered by Lenity Financial, Inc. unless a client service agreement is in place.
Sources: Barron’s, CNBC