The stock market continued to move higher in September as the Federal Reserve decided to experiment with additional bond buying. I am aware that the Fed is forcing money into the stock and bond markets but, at least to me, it seems as though bubbles are being created and risks are being taken that are potential serious future problems. Increased government meddling in the private economy is not a wise course of action, and one which I believe will ultimately hurt investors.
Nevertheless, I must acknowledge that market trends are powerful forces and the current trend in prices is still higher. I have made some minor adjustments to my Market Comparables stock model to take this fact into account.
Earnings estimates for the S&P 500 Index (SPX) continue to decline, both for 2012 and 2013 but the weighted average is increasing as we get closer to next year, according to Thomson Reuters. It does seem very unlikely that we will come anywhere close to the estimates currently being used, so further sizable reductions in estimates are very possible. Earnings reports for the 3rd quarter will likely be problematic.
Valuation seems normal but only on the basis of the earnings expectations discussed above that seem much too optimistic.
Currently I am holding a very small stock position based on a market that is still trending higher but I continue to feel that the risk – reward equation is tilted seriously to the risk side. With the government actively meddling in the economy it has become very difficult to make future projections, but these are not market conditions that bode well for further stock price advances.
Disclosure:The index comparisons herein are provided for informational purposes only and should not be used as the basis for making an investment decision. There are significant differences between client accounts and the indices referenced including, but not limited to, risk profile, liquidity, volatility and asset composition. The S&P 500 is an index of 500 stocks chosen for market size, liquidity and industry, among other factors.
The investments discussed (this model holds SPY, which tracks the S&P 500) are held in client accounts as of September 30, 2012. These investments may or may not be currently held in client accounts.The reader should not assume that any investments identified were or will be profitable or that any investment recommendations or that investment decisions we make in the future will be profitable.
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. Covestor 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.
