Welcome to Scribd, the world's digital library. Read, publish, and share books and documents. See more
Download
Standard view
Full view
of .
Save to My Library
Look up keyword
Like this
1Activity
0 of .
Results for:
No results containing your search query
P. 1
Lane Asset Management Stock Market Commentary for November 2013f

Lane Asset Management Stock Market Commentary for November 2013f

Ratings: (0)|Views: 13 |Likes:
Published by Edward C Lane
Economic and stock market commentary for November 2013.

Once Washington learned the market would not tolerate a debt default and settled their differences, October saw the S&P advance 4.6% -- almost entirely in the last 3 weeks of the month –- on the heels of pretty fair third quarter corporate profits.

The question of market valuation is unsettled, as far as I can tell, with one popular measure indicating no major concern while another raises a red flag. Some people think the market is way overbought and there is at least one credible analyst who foresees a decline on the order of 40-50% as we saw in 2008. I don’t see it. What I do see, however, is a market (talking the S&P 500 here) probably due for a breather, but otherwise likely to continue its advance, albeit at a slower pace than the last couple of years. If we avoid debt default in January, as I suspect we will, and if we don’t hit an air pocket over QE tapering, I suspect we’ll be OK.
Economic and stock market commentary for November 2013.

Once Washington learned the market would not tolerate a debt default and settled their differences, October saw the S&P advance 4.6% -- almost entirely in the last 3 weeks of the month –- on the heels of pretty fair third quarter corporate profits.

The question of market valuation is unsettled, as far as I can tell, with one popular measure indicating no major concern while another raises a red flag. Some people think the market is way overbought and there is at least one credible analyst who foresees a decline on the order of 40-50% as we saw in 2008. I don’t see it. What I do see, however, is a market (talking the S&P 500 here) probably due for a breather, but otherwise likely to continue its advance, albeit at a slower pace than the last couple of years. If we avoid debt default in January, as I suspect we will, and if we don’t hit an air pocket over QE tapering, I suspect we’ll be OK.

More info:

Categories:Business/Law
Published by: Edward C Lane on Nov 05, 2013
Copyright:Attribution Non-commercial

Availability:

Read on Scribd mobile: iPhone, iPad and Android.
download as PDF, TXT or read online from Scribd
See more
See less

07/19/2014

pdf

text

original

 
Economic and Market Recap
October’s equity performance was an inter-
esting study in behavioral finance.
Following September’s nonchalance about
the impending shutdown and debt default, market weakness in the first nine days of Oc-tober sent a message to legislators that the shutdown was wearing thin and that the po-tential debt default was not going to be toler-ated. Once Washington got the message, we saw a complete turnaround in the market as news came of an impending budget deal and likely
 
end to the standoff on the debt ceiling, and
President Obama’s announcement of Janet
Yellen as the next chair of the Fed drove the Dow up over 300 points in one day.
 With Washington’s nonsense out of the way,
fundamentals took over for the rest of the month. By month end, according to Zacks Research, with over 70% of the S&P 500 re-porting third quarter earnings, over 2/3rds of companies beat expectations on earnings and  just over half had beaten on revenue (note that guidance was lowered over the last cou-
ple of quarters, making the “beat” easier, and
Stock Market Commentary
November 5, 2013
Lane Asset Management
Are market valuation (PE
ratios) stretched? I can’t
really say. On the one hand, the traditional and probably most watched measure, the twelve-month trailing (TTM) av-erage for the S&P 500 is around the top of its range over the last 100 years, but not nearly at the levels of the last two major market bubbles in 2000 and 2008. In fact, ,  when I look at the data, I found that the TTM PE is almost 10% lower than it  was on January 2008 and slightly lower than it was on January 2010 even though the S&P has in-creased 70% since then. On the other hand, the cyclically-adjusted Shiller PE ratio is well above its 100-year average and  well above its level in  January 2008 as the mar-ket began its nosedive. As there are critics for both measures, my sense is its best to lean toward caution at this time.
continues to be downbeat). Even the delayed  weak jobs report did no harm as the market read into it that QE tapering would be put off a little longer. Investment Outlook Again according to Zacks, earnings are on track to reach an all-time quarterly dollar record, to an ex-pected 6% increase in 2013 and over 11% increase for 2014 (an interesting forecast in light of low-ered guidance). My outlook remains cautiously optimistic with my longer term concerns at this point being a reac-tion to any new suggestion of QE tapering from the Fed or disappointing Q4 earnings.  With no change from last month, as of this writ-ing, there are still areas of relative outperfor-mance, including:
Healthcare, especially biotech
Consumer discretionary and industrials
Large cap value
International developed markets, especially Europe (though I still favor the U.S.)
Emerging markets (longer term)
 While returns are skimpy in comparison to re-cent years, short term high yield bonds and floating rate loan funds offer the best opportu-nity. 
The charts on this and the following pages use exchange-traded funds (ETFs) rather than market indexes since indexes cannot be invested in directly. The ETFs are chosen to be as close as possible to the performance of the indexes while representing a realistic investment opportunity. Prospectuses for these ETFs can be found with an internet search on their symbol. Past performance is no guarantee of future results.
 
SPY is an exchange-traded fund designed to match the experience of the S&P 500 index adjusted for dividend reinvestment. Its prospectus can be found online.
Past performance is no guarantee of future results.
Page 2
Lane Asset Management
Last month, I held onto my September view that equity risk remained to the downside as we entered Octo-
ber, but then said “...a settlement on the Federal budget could change things in an instant.” Lo and behold, that’s exactly what happened. And there’s a lesson in that: when enough market pressure is applied to  Washington (not voter pressure, unfortunately), Washington responds. We’ll see if this applies again in Janu-
ary when the next deadline is scheduled to take place. So, how does the market look now? Well, on the basis of the chart below, except for being a little overbought on a short term basis and suscep-tible to a correction of 3-5% or so (see the prior circled areas when price got beyond the 50-
day MA), I’d have to say that equi
ties are looking pretty good with a rising trend line and improved momentum with the change in direction for the MACD. My larger concern from a technical perspective, however, is that the long-term trend is overbought (see next page). Therefore, I am going to maintain my cautious yellow-flag stance. Investors need to evaluate their tolerance for risk as the market plows ahead.
S&P 500
 
SPY is an exchange-traded fund designed to match the experience of the S&P 500 index adjusted for dividend reinvestment. Its prospectus can be found online.
Past performance is no guarantee of future results.
Page 3
Lane Asset Management
Below we have two pictures of trend in SPY’s price. On the left, we have a shorter term, daily view with a
spread from the top of the channel to the bottom of about 11.5%. Movement within this channel and in this perspective remains positive and, most recently, strengthening. This is seen in that a) the 50DMA slope is now increasing, b) we have a new high in the market, and c) the MACD has reversed course to the good. On the right, we have a longer term, weekly view with a spread from the top of the channel to the bottom of about 17%. In this view, SPY is near the top of the channel for the 6th or 7th time in over 4 years (depending on how you count), with 2 out of 6 of the prior times resulting in a significant correction to the bottom of the channel. What concerns me is a possible repeat of the experience of the Spring of 2011. If looking at
only this chart, there is good reason to keep exposure to equities below one’s long term strategic allocation. Since SPY has
 reached back to the top of the channel without an intervening correction, it may be a particularly good time to take some equity exposure off the table to await a better buying opportunity.
S&P 500 Trend

You're Reading a Free Preview

Download
/*********** DO NOT ALTER ANYTHING BELOW THIS LINE ! ************/ var s_code=s.t();if(s_code)document.write(s_code)//-->