We have been quite adamant and perhaps somewhat relentless (for almost a full year now) about the current status of value (or more exactly the lack of value) in equity prices and especially those in the US.
Today the US Commerce Department released the updated reading on Q4 2015 GDP, which was revised up to 1.4% from the last report of 1%.
On the surface some might take solace in an upward revision of the state of the US economy. However, that is rather historic (backward looking) data as we approach the end of the 1st quarter of 2016.
Generally, we find it considerably more worthwhile trying to look forward to determine what comes next and how we should structure our portfolios (and for our clients who invest along side of us) for the best possible and prudent risk-adjusted strategy.
Sometimes, however, it helps to look back to see how economic cycles have resolved themselves in the past to gage just where we are in the current cycle and what might transpire in the future as a result.
Alongside the data for Q4 2015 GDP, the US Commerce Department also released data on 2015 Corporate Profits.
Last Tuesday, we focused on 3 indicators that have historically predicted recessions to follow.
One of them focused on Corporate Profits, but was without the most recent data.
So here is the updated version including today's data release (circled):
So folks, perhaps it is time to worry less about real estate prices in Vancouver and re-think exposure to US equities (and your portfolio strategy):
Because we see a pattern, where equity prices have historically followed Corporate Profits with a lag in timing. A lag that is overdue in the current environment. What really stands out in this chart? S&P 500 prices are still relatively close to their highs.
Just saying: because I am afraid of high places and standing too close to the edge.
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Scott Tomenson,CIM Managing Partner, Chief Investment Strategist