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.