Maybe September will be more interesting. As investors start looking forward to 2017, I'm not sure what the reaction will be. The prospect of one of the two prime presidential candidates being in charge can't be very comforting but the slow growth and super-low interest rates don't give investors a lot of options. Earnings expectations remain modestly positive and valuation remains way too high. Sentiment is mixed but certainly not bullish. I remain in a hedged position awaiting more favorable conditions.
Another week of minimal change and my stock market model reflects that fact. Earnings expectations - OK. Sentiment - Poor but could be worse. Valuation - Very poor and probably can't get too much worse. Enjoy what's left of summer.
This market has gotten so boring that I find myself paying more attention to my Pandora radio channel. Currently playing is "You've Got Bad Intentions" by Magic Slim and the Teardrops. Excellent blues song! It is only with the best of intentions, though, that I relate there have been no changes to my stock market model this week. Earnings expectations are about 2% better than they were one quarter ago when looking one year out. Sentiment is negative because most small investors and speculators are pretty bullish. Valuation is very poor and it got a little worse last week. The risk/reward ratio is very skewed to the negative so I remain fully hedged, waiting for a more opportune time to remove some or all of my hedges.
I finally returned home today and wanted to post an updated chart. Not that there is anything really new. Valuation continues to be the problem. It actually improved marginally over the past two weeks because my model is now looking at earnings through 6/2017 but valuation continues to be extremely high. Earnings are still showing increased estimates and sentiment is still bearish but not extremely so. I am maintaining a hedged position patiently waiting for a better buying opportunity.
Richard Moore, CFA
With my wife in Hawaii