The S&P 500 is up close to 7% this year. S&P 500 companies are likely going to have negative earnings growth for 2016.
So do the math there.
So then, why are so many investors buying stocks and driving prices higher?
Dividend yields (apparently) are better on a relative basis to safer assets (like bonds) because central banks are keeping interest rates low, so the going advice from the investment advisor base is to forget risk and jump into stocks.
But, we can remain close to 40% in cash (equivalents) for safety purposes and still get our clients' (and ourselves) returns close to 6.25% after fees (so far this year) in a 60 / 40 model (although it is not exactly 60% equity with that healthy weighting in cash), but the model is "targeted" to be 60% equity, when we so deem it wise to step back into the broad equity market and get fully invested.
Oh and by the way, the benchmark 60% ACWI / 40% XBB has had a combined total return of 5.92% (before fees) (Bloomberg Total Return Analysis, Daily from Dec. 31, 2015), so if you take off .80% for fees, it is closer to 5%. that puts our 6.25% (after fees) return well ahead of the benchmark as well.
We say "safety first".
In the meantime, we use our deep research to find other places for value in our tactical model to help continue to get growth with significantly better risk-adjusted returns (than those who are fully invested in equities at their over-priced levels).
When equity prices do move lower eventually, our clients (and ourselves) will face considerably less fluctuation in value than the fully invested model.
Volatility will increase.
The US Federal Reserve may raise interest rates (as soon as September).
The US economy (and the global economy for that matter) will inch closer to recession (that is what bond markets are telling us).
And our clients will sleep better through it all (focusing on the longer - term perspective built into their Wealth Forecasts).
And today we will discuss all of this in more detail on our weekly (except for the last 2 weeks) client webinar.
We will post the recorded version on our website at or about 5pm EDT today, so if you are interested, please feel free to tune in at...
And... if you wish to communicate directly with me with any feedback, ideas or questions:
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Scott Tomenson,CIM Managing Partner, Chief Investment Strategist