Many folks were surprised that major U.S. stock markets were positively euphoric following President Trump’s speech on February 28. Optimism about the new administration’s pro-growth policies propelled the four major U.S. stock indices to record highs, despite a dearth of policy details, reported Financial Times.
It’s hard to pinpoint exactly why stocks have moved so far, so quickly. However, it appears that many mom-and-pop investors have become quite enthusiastic about the asset class according to data from JPMorgan Chase cited by Bloomberg. While institutional investors (pensions, insurance companies, etc.) have been reducing exposure to stocks, smaller investors have been loading up on shares.
CNBC reported some industry professionals, including Goldman’s chief U.S. equity strategist David Kostin, believe stocks have become too highly valued. ZeroHedge.com quoted Kostin, who said:
“Cognitive dissonance exists in the U.S. stock market. S&P 500 is up 10 percent since the election despite negative EPS [earnings per share] revisions from sell-side analysts…Investors, S&P 500 management teams, and sell-side analysts do not agree on the most likely path forward. On the one hand, investors, corporate managers, and macroeconomic survey data suggest an increase in optimism about future economic growth. In contrast, sell-side analysts have cut consensus 2017E [estimated] adjusted EPS forecasts by 1 percent since the election and ‘hard’ macroeconomic data show only modest improvement.”
Financial Times reported pessimism prevails in the bond market. One bond market professional said,
“The bond market is taking a totally different view from the equity market. Blowing raspberries is a good way to put it…There’s no belief that the growth agenda will be dramatic.”
So, is strong economic growth ahead? Do bond investors or stocks investors have it right? Are institutional investors or mom-and-pop investors positioning themselves correctly? Only time will tell. In the meantime, the one thing you can control is your own behavior. Sticking to your financial plan in good times and in bad is the best approach I know for navigating uncertainty in the market.
* Government bonds and Treasury Bills are guaranteed by the U.S. government as to the timely payment of principal and interest and, if held to maturity, offer a fixed rate of return and fixed principal value. However, the value of fund shares is not guaranteed and will fluctuate.
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* The 10-year Treasury Note represents debt owed by the United States Treasury to the public. Since the U.S. Government is seen as a risk-free borrower, investors use the 10-year Treasury Note as a benchmark for the long-term bond market.
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* The Bloomberg Commodity Index is designed to be a highly liquid and diversified benchmark for the commodity futures market. The Index is composed of futures contracts on 19 physical commodities and was launched on July 14, 1998.
* The DJ Equity All REIT Total Return Index measures the total return performance of the equity subcategory of the Real Estate Investment Trust (REIT) industry as calculated by Dow Jones.
* The original “Weekly Commentary” was prepared by Peak Advisor Alliance. Jonathan DeYoe is a member of Peak Advisor Alliance and adds, subtracts and edits before publishing.
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* “Some Things Are out of Our Control”
https://www.ft.com/content/8bb044d0-ff76-11e6-8d8e-a5e3738f9ae4 (or go to https://s3-us-west-2.amazonaws.com/peakcontent/+Peak+Commentary/03-06-17_FinancialTimes-Bond_Investors_Send_Warning_for_Record_High_Equity_Market-Footnote_1.pdf)
https://www.ft.com/content/cc48869a-ff9b-11e6-96f8-3700c5664d30 (or go to https://s3-us-west-2.amazonaws.com/peakcontent/+Peak+Commentary/03-06-17_FinancialTimes-Hearty_Appetite_for_US_Equity_Funds_Since_November_Election-Footnote_2.pdf)