Author: Richard Moore
Covestor model: Market Comparables
The stock market managed to hold onto a small gain in August, an excellent performance given the plethora of problems confronting the economy. Investors seemed to desire and expect a lifeline from the Federal Reserve and they will likely not be disappointed. The real question is whether more Fed action will be enough to turn around a slowing economy.
Earnings estimates for both this year and next continue to decline, although the pace of descent is very slow. This is a difficult factor for the market to overcome and it is hard to envision a short-term turnaround in earnings prospects this year. I believe that it seems much more likely that earnings will increase only modestly in the third and fourth quarters.
Sentiment factors are decidedly negative even as small investors and speculators are quite bullish and are almost all in at this time. My sentiment indicators are now at the same levels as prevailed during April of this year – before the correction at that time.
Valuation factors are modestly negative even though interest rates are quite low and the Federal Reserve has pledged to keep them there for some time. Technical factors are generally positive but only modestly so. These are trend following indicators and it would only take a small decline from these levels to turn these indicators negative.
I continue to be out of the market until my indicators assume a more favorable posture. I am extremely risk averse and feel that now is not the time to take a more aggressive posture. I am quite sure that there will be better buying opportunities as we go through the balance of 2012 and into 2013.
Disclosure: Certain of the information contained in this presentation is based upon forward-looking statements, information and opinions, including descriptions of anticipated market changes and expectations of future activity. This Investment Adviser believes that such statements, information, and opinions are based upon reasonable estimates and assumptions. However, forward-looking statements, information and opinions are inherently uncertain and actual events or results may differ materially from those reflected in the forward-looking statements. Therefore, undue reliance should not be placed on such forward-looking statements, information and opinions.
