XLP

A Kleenex? Consumer Staples Trading At Nosebleed Levels

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Image Source: Alan Levine “The forward 12-month P/E ratio is 17.0. This P/E ratio is based on Thursday’s closing price (2170.06) and forward 12-month EPS ($127.93). The P/E ratio of 17.0 is above the prior 5-year average forward 12-month P/E ratio of 14.6, and above the prior 10-year average forward 12-month P/E ratio of 14.3. It is also above the forward 12-month P/E ratio of 16.6 recorded at the start of the third quarter (June 30).” – FactSet Earnings Insight, July 29, 2016 Kleenex anyone? Because we’re at nosebleed valuations in the consumer staples (XLP) sector! At arguably no time in the history of the stock market have investors been willing to pay so much for each unit of earnings … Read more

Understanding the Market Melt Up

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Image Source: Martin Thomas A previous version of this article appeared on our website April 15, 2016, “The Bubble Is Still Inflating.” No – things are not getting better. The discount rate is shrinking – and that means rising equity values. The laws of finance continue to be bent. NIRP (negative interest rate policy) has changed everything. The world is upside down, and it seems as though every week, we hear of another country or yet another long-er duration bond that has breached below the 0% threshold, “Japan’s 20-Year Government Bond Yield Goes Negative for First Time (July 2016).” The 10-year Treasury yield hit all-time lows just last week. We wrote extensively on the NIRP topic in the February 1, … Read more

Keep Calm and Carry On?

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Image Source: War History Online, June 22 Brexit may or may not be a big problem. Time will tell. But what matters and eventually becomes its own catalyst, however, is valuation. The forward price-to-earnings multiple on S&P 500 companies (SPY) is currently ~16.5 times, above its 5-year (14.6) and 10-year averages (14.3). This is the real story. Assuming a reversion to the 10-year average multiple, for example, the S&P 500 can be considered “fairly valued” at $1,811, a drop of another 10% from ~2,000 levels. You don’t need us to tell you that the markets have practically gone straight up the past seven years from the March 2009 panic bottom through today, with the S&P 500 effectively tripling since that … Read more

Brexit: Secession Bells Are Ringing!

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First Baptist Church in Columbia, S.C., where the first secession convention in the United States opened on Dec. 17, 1860. Source: Library of Congress, Washington, DC. Photo. Encyclopædia Britannica Online. Web. 24 Jun. 2016. Global markets are plunging, and the implosion may still be in the early innings. Market valuations remain stretched among stagnant global economic growth, and “Brexit” may be the catalyst for a correction. In the paraphrased words of the well-known The Day of the Jackal author, Frederick Forsyth: the peasants have spoken. On June 23, the UK (EWU) held a referendum, in which anyone of voting age could take part, to decide whether the country should leave the European Union. The turnout was incredible at nearly 72%, and … Read more

Soros, Icahn, Nelson Hedge for Market Fall

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Pictured: George Soros; source: Heinrich-Böll-Stiftung By The Valuentum Team Following news that Warren Buffett’s Berkshire Hathaway’s (BRK.A, BRK.B) took a rather sizable stake in Apple (AAPL), news flow from other large investors continues to be decidedly bearish. As our members are aware, we recently added put options on the S&P 500 (SPY) to protect capital in the Best Ideas Newsletter portfolio, a move that may expire worthless but accurately captures our sentiment toward today’s overheated equity market. As of May 13, the forward 12-month price-to-earnings ratio on S&P 500 companies is 16.6, above both its 5-year average (14.5) and 10-year average (14.3). Reversion to the 10-year average alone means the S&P 500 Sector SPDR ETF (SPY) has downside risk to ~$170 … Read more

The Market – On Its Head

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By Brian Nelson, CFA The sector/theme returns have almost been turned on their head as some of the worst performers in the first few weeks of 2016, namely materials (XLB), energy MLPs (AMLP, AMZ), and energy (XLE), have transformed into leaders through the latest data update, April 21. As we outlined in “Alerts: Adding More High-Quality Exposure, (April 2016)” the dividend “track record” growth craze is on, in our view, and yield-rich exposures from utilities (XLU) to the dividend-growth focus itself (SDY) have rallied more than 9% in the year thus far. The metals gold (GLD) and silver (SLV) have also proved to be good trades out of the gates thus far in 2016, up ~18% and 23%, respectively, though … Read more

The Bubble Is Still Inflating

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The laws of finance are being bent, broken even. NIRP (negative interest rate policy) has changed everything. The world is upside down. At the beginning of the year, we were expecting ongoing contractionary monetary policy by the Fed, but on January 29, all of that changed. In a surprise move, the Bank of Japan introduced a negative benchmark interest rate of -0.1%, meaning that instead of paying interest on deposits, it would charge banks to hold their money. The move seemed to blindside the Fed, and from where we stand, it has effectively put rate increases on pause. There’s a reasonable chance of a rate hike in December, but the latest read from the CME is that there’s no chance … Read more

Dividend Growth ‘Bubble’ To Continue But For How Long?

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You’ve heard about low interest rates. You may have even heard about a ZIRP, zero interest-rate policy, as had been the case in the US for years, but have you heard of NIRP, negative interest-rate policy? Well, that’s the latest with respect to Japan (EWJ), which is home to the third-largest national economy in the world after the US and China. On January 29, the Bank of Japan (BOJ) introduced a negative benchmark interest rate of -0.1%, meaning that instead of paying interest on deposits, it will charge commercial banks to hold their money. This may make Japanese exports cheaper to stimulate growth, but my goodness, talk about a move to push “parked” assets out of the country. The US … Read more

What’s Working in Today’s Market?

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By Brian Nelson, CFA As emerging markets around the world suffer from commodity-price-led economic weakness, capital continues to find a safe-haven in US government bonds (TLT, TBT), but for those equity-oriented funds that mandate a fully-invested status, not something we’re particularly advocates of, assets within US equities have favored “lower-beta” utilities (XLU) and consumer staples (XLP) sectors while cyclically-dependent and credit-levered sectors such as the financials (XLF) and materials (XLB) have suffered thus far in 2016. The industrials (XLI) and energy (XLE) sectors have also encountered higher-than-normal selling pressure in the first few weeks of the New Year, as investors evaluate the global economic landscape and what a prolonged period of low energy prices may mean for the lowest quality … Read more

Batten Down the Hatches – Another US Market Crash Probable

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A global financial contagion like that of the Financial Crisis just six short years ago cannot be ruled out. The magnitude of wealth lost in China’s (FXI) equity market is simply staggering, and we’re already witnessing bad loans soar across China’s Big 4 banks. We’re hearing that property, used as collateral for stock margin trading in China, is often being sold for 90 cents on the dollar as speculators look to cover losses. We expect the fallout from the collapse in Chinese equity markets to eventually reverberate through their property markets, impacting loan-to-values in the commercial and residential arenas, sparking significant loss rates and asset write-downs across the Chinese financial system. We continue to assess the tangible evidence of an … Read more