Do you feel like you’ve been on a roller-coaster lately? Well, you’ll probably need to hold on tighter to your seats this year, as it looks like market volatility is here to stay. After several multi-hundred point swings in the past month, and surging past the 26,000 mark, the Dow Jones Industrial Average’s net loss since our last newsletter was some 745 points. And while the overall market sentiment remains bullish, the bears have gained some steam—for longer-term prognostications.
Wall Street’s Best Dividend Stocks 305
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Market Views
Volatility Continues
We remain braced for additional downside as the new trading week begins, though we note that the yield on the 10-Year U.S. Treasury ended last week at 2.85%, only a smidge higher than the 2.84% a week earlier. Certainly, interest rates can and likely will move even higher, but the 9% plunge in stock prices the past two weeks has lowered the chances of the Federal Reserve hiking the Fed Funds rate at least three times in 2018.
Of course, we continue to see no reason to alter our enthusiasm for the long-term prospects of our broadly diversified portfolios, especially given our relatively inexpensive valuation metrics and the strength we have been seeing in Q4 corporate profit reports.
John Buckingham, The Prudent Speculator, www.theprudentspeculator.com, 877-817-4394, February 12, 2018
Time to be Picky
From Bespoke Investment Group: “Conventional wisdom is freaked out when a major index breaks under its 200-day average for the first time in a long while. However, research shows that the last four times that the S&P 500 has broken below its 200-day average after a streak of 300-plus days above, the index has been up huge in the next six months. That includes +12.1% after it was breached on 10/13/2014; +20.2% when breached 8/27/88 and +18% when breached 7/15/96.”
The best news about the correction: Valuations have dropped. The S&P 500’s price/earnings multiple has dropped to 20.5x now vs. 23x two weeks ago. Even if equity markets enter a fat, sloppy range in the next few weeks and months, some stocks will still outperform due to their unusually strong fundamentals and prospects.
I suspect that the January highs will be seen again later this year, but not until more pain and stress has been endured. The unwind of anti-volatility bets along with the unwind of the Fed balance sheet will make 2018 much trickier than we had anticipated. Trouble in credit-land is nothing to mess around with. Enjoy the bounces as they arrive, but stay on your toes. And make sure you don’t have money you may need for life necessities in the next couple of years overly exposed to stocks.
Jon Markman, Strategic Advantage, http://www.markmancapital.net/, February 12, 2018
Bounce is in the Cards
US stock-market trends still favor larger stocks and growth; clearly even in a correction this market has a one-track mind. Our FAANG Index covered its breakaway gap with Friday’s wild swings, which might suggest that it has fallen far enough. (Still needs confirmation.) Along the same lines, Friday’s sharp intraday reversal established a short-term W bottom. (A good up day Monday (or Tuesday) would confirm.) The market is quite oversold on a short-term basis, so the odds of a bounce look quite good. The name of the game is to examine the ensuing rally. If it is strong and well confirmed, then all clear, but if it is weak and full of divergence, then we must expect more downside.
John Bollinger, The Bollinger Band Letter, www.bollingerbands.com, 310-798-8855, February 11, 2018
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The Next Wall Street’s Best Dividend Stocks Will Be Published March 14, 2018
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