Investment Outlook | Financial Services | Certified B Corp | Buffalo, NY
It’s funny what rhetoric headlines could do to the market! Well last week, the USA-North Korea standoff comments led to the similar sell-off we saw earlier this year in May, with the pattern in the VIX index mirroring too. I am not sure whether this sell-off is done with, or there is more to come as the breadth of the indexes continue to deteriorate, however I continue to think latter is on the cards. The percentage of the NYSE stocks above 200-moving average now just above 42%. Historically after falling to those levels, the breadth has only deteriorated before getting better.
And for all those calling for the market crash, I do not think that we are anywhere close to a scenario like that (unless of course there is black swan somewhere). Today, as the S&P 500 continues to emerge from its 2015-’16 EPS recession, GAAP EPS growth has risen by more than 21% in the past year, the blended earnings growth is above 10.2% for Q2 2017 and well above the market-top average of 8.8% and the average for all periods at 14.9%.
I wrote about the divergences and the breadth in my previous newsletter and the divergence today is nowhere close to what it was during 1999-2000 bubble.
As you see from the chart below, the equity market continued to rally (well into 2000) even after the advance-decline line continued to fall.
We do not see the current markets in similar situation. Having said that, the equity markets have had a good run, may be overheated a bit and maybe ripe for correction.
This information has been obtained from sources considered to be reliable, but we do not guarantee that the foregoing material is accurate or complete. Any information is not a complete summary or statement of all available data necessary for making an investment decision and does not constitute a recommendation. Any opinions are those of Chintan Shukla, CFA and not necessarily those of Raymond James. The information contained in this report does not purport to be a complete description of the securities, markets, or developments referred to in this material. You cannot invest directly in any index and Past performance may not be indicative of future results. Investing involves risk and investors may incur a profit or a loss. The S&P 500 is an unmanaged index of 500 widely held stocks that is generally considered representative of the U.S. stock market. The Dow Jones Industrial Average is an unmanaged index of 30 widely held securities. There is no assurance these trends will continue or that forecasts mentioned will occur. The NYSE Composite index is an unmanaged index of all stocks traded on the New York Stock Exchange. An Advance/Decline Index is a technical analysis tool that represents the total difference between the number of advancing and declining security prices. This index is considered one of the best indicators of market movements as a whole. New highs/New lows represents the number of all NYSE stocks making new 52-week highs or lows. VIX is the ticker symbol for the Chicago Board Options Exchange (CBOE) Volatility Index, which shows the market’s expectation of 30-day volatility. It is constructed using the implied volatilities of a wide range of S&P 500 index options.
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