Market Commentary

 

 

 

JANUARY 2020

 

 

Up, up and away! The stock market continues to amaze as we move higher and higher into the new year. Certainly, market watchers are taking note and now starting to discuss this openly. Barron’s this weekend had a table highlighting that the market was extremely overvalued in every way except in comparison to bonds. The price to earnings ratio, the ratio of the stock market to the gross domestic product, the price to sales ratio, you name it, and it’s pricey. However, as they rightly point out, the market still needs a catalyst for things to turn. As crazy as house prices became in 2007, you still needed some banks to fail before people started running away. In the same manner, the stock market could continue it’s climb until it finally encounters a reason to stop. This is why we have advised caution at this stage of the game and not outright fear. It certainly makes sense to move a part of the portfolio to defense, but why give up entirely on the gains that we have been witnessing. It pays to recall that the market will do what it wants whether we agree with it or not.

Below we see the S&P 500 Index for this entire bull market going back to 2008. Very impressive to be sure, but it will always be a bit of a cyclical game. We would not advise walking away and ignoring the markets at this point, but the higher it goes, the more dangerous it gets.

 

 

Economic data for the month were solid with GDP clocking gains of 2.1% as expected. U.S. firms added 145,000 jobs compared to the 166,000 expected, and retail sales were 0.2% better, missing expectations of 0.5%. All and all, still solid numbers and no signs of a recession to be seen.

Finally, one of the biggest catalysts for this action is the Federal Reserve. Quietly, the Fed has been supporting the corporate loan market with giant injections of cash. Since September, the Fed has put over $300 Billion dollars into this market to make sure that corporations are able to borrow. This is a lot of money by any measure and money always has a way of ending up in the stock market. So, while the Fed claims this is not quantitative easing, it sure looks like it.

Put it all together, and we have good but slowing economic growth, a very expensive market, and a pile of money being thrown in for support. Don’t be surprised if it doesn’t end well, but that could be a bit down the road.

 

 


Disclaimer: Information presented is for educational purposes only and does not intend to make an offer or solicitation for the sale or purchase of securities. Investments involve risk and are not guaranteed.