S&P 500 prices are up close to 8% on the year and earnings for 2016 are expected to show close to zero growth.
Earnings expectations for 2017 (building in all the positives) are for growth of 11.4%.
Inclusive of all that is positive, 12 month forward Earnings Per Share are at 16.7 times, well above the 10 year average of 14.3.
Simple question: if you had new cash, where would you want to buy US stocks (with a long-term investment in mind)?
If you are buying a stream of future earnings, which is why you invest in equities (which are completely built-in to the 16.7 times Earnings per Share data), then you are buying at relatively rather expensive prices.
At prices that put Earnings per Share below their longer-term average, it would likely make more sense.
So why the hurry?
Stock prices are running on emotion: they are calling it the "Trump Trade" and most investment companies and financial institutions want you to buy into the hype, because if stock prices go up, all is well with the world, apparently.
I am a contrarian by nature, so I am not likely someone who runs with the crowd and I am definitely not running with this one. In fact, I notice the cracks in the argument (part of my cautious nature: keeps me agile, fit and slims my waist line): like the possible end result of the continuation of the populist, anti-free trade movement. First Brexit, then Trump (tearing up the Trans Pacific Partnership, which accounted for about 40% of the global economy), next the Italian constitutional referendum and/or the French presidential elections (which could, in fact be the beginning of the end for the Euro).
Are we to ignore all that because apparently Donald Trump will make America great again?
He has certainly pushed interest rates higher and left a great deal of those with overwhelming debt (at record levels) with higher debt servicing costs and only hope for some economic help from the yet to be announced fiscal spending.
Hope is a good thing as long as there is some follow-through.
Are we to believe that Donald Trump is going to be able to pull it off (he also claimed that he was going to put Hillary in jail)?
Good luck with that. The man is all talk, little substance.
As my business partner Paul says..."One month does not a trend make..."
We will talk about this and more and how our models and portfolios continue to beat the benchmark averages despite our cautious approach on our client webinar today. The recorded version will be posted on our website: High Rock Capital Weekly Webinar at or about 5pm EST.
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Scott Tomenson,CIM Managing Partner, Chief Investment Strategist