Comments from Prateek Mehrotra, CIO of Endowment Wealth Management, Inc., were printed in InstitutionalInvestor.com earlier today in an article titled Portfolio Perspective: Warning Signs for Your Client’s Stock Market Exposure. In the article, Prateek discusses a number of valuation metrics that he follows, many of which are extended. This leaves the market potentially vulnerable to a “mean-reversion” type correction, although there is room for further upside in equity prices. He further comments that “Portfolios can be cushioned from a U.S. sell-off by diversifying across hedged equity, foreign developed and emerging-markets stocks, nontraditional fixed income, master limited partnerships (MLPs), real estate, commodities and other liquid alternatives”. The entire article can be found at the bottom of Institutional Investor’s Daily Agenda column.
Does this Bull Market have legs?
(Source: Bespoke Investment Group)
Consumer prices rose modestly in July, a sign inflation remains in check as the Federal Reserve winds down its bond-buying program. The price index for personal consumption expenditures–the Fed’s preferred inflation measure–increased 1.6% in July from a year earlier, the Commerce Department said Friday. Excluding volatile food and energy prices, so-called core prices climbed 1.5% year over year.
Both overall and core prices rose at the same annual pace in July as they did in June, suggesting inflation pressures remained at bay. Compared to a month earlier, each measure was up just 0.1%. Inflation continues to run below the 2% target the Fed sets as a gauge of price stability and healthy growth. The PCE price index has run below 2% for 27 consecutive months.
Still, prices have picked up since the start of the year, and the Fed projects they’ll steadily climb toward its target by the end of 2015. As recently as February, the index showed prices growing at just 1% year over year.
A separate measure also shows inflation in check. The Labor Department’s consumer-price index rose 2% in July from a month earlier. In May and June, the index had risen 2.1% year over year.
The CPI historically runs about half a percentage point higher than the PCE price index, which employs different statistical methods.
(Source: WSJ, BLS)
One of the many indicators that we follow:
This week:
Bullish: 51.9%, up 5.8 points
Neutral: 28.8%, down 1.4 points
Bearish: 19.2%, down 4.4 points
Historical Averages:
Bullish: 39.0%
Neutral: 30.5%
Bearish: 30.5%
(Source: AAII)
Is the Euro Zone dealing with the same deflationary issues that the Fed was grappling with a few years ago?
With the drop in headline euro-zone inflation to 0.3% in August from 0.4% in July, calls for further ECB action—including large purchases of sovereign bonds—are getting louder. Clearly, inflation is far adrift of the ECB’s target of “below, but close to” 2%.
But once again, virtually all of the decline is due to volatile prices for energy, food, alcohol and tobacco. Excluding those, euro-zone inflation rose to 0.9% from 0.8%. Of the decline in headline inflation from 1.3% a year ago, nearly 90% is attributable to moves in energy and food prices.
With core inflation stable, it is hard to see deflation as a threat, even if market-based measures of inflation expectations have proved wobbly recently. More relevant in any case is the attitude of consumers and entrepreneurs to inflation. If lower food and energy prices are proving a cushion for stretched individuals and businesses, then that may be no bad thing. But the longer low inflation persists, the more it may become a problem if, for instance, it starts to drive wage settlements.
(Source: WSJ)
Per a recent article in the WSJ, the average solar module prices have come down from $3.95 per watt in 2008 to $0.65 per watt recently. That is a dramatic decline as the industry has gone through a full demand/supply cycle, since we started looking at this space in 2006/2007.
Tuesday’s finish was the 30th record close this year for the index, which has gained 8.2% in 2014 through the end of trade on Tuesday. The Dow industrials hit an intraday record of 17153.80 on Tuesday but failed to hold a record through the close.
The rally through 2000 marks the S&P’s third major upswing since the late 1990s. The index first breached the 1000 mark on Feb. 2, 1998, and ran as high as 1527 in March of 2000 only to break back below 1000 briefly in September of 2001 and again in June of 2002. The post tech-bubble bull market, which saw the S&P push above 1560 in October 2007, was halted by the onset of the financial crisis. That bear market knocked the index down through 1000 in October 2008 to a multi-year closing low of 676.53 on March 9, 2009.
With the latest milestone in the rear-view mirror, some investors are wondering how much further stocks can go.
(Source: WSJ)