In its latest update, Apple added a new app that sends an alert to yourApple Watch or iPhone when it identifies sound levels in your environment that may negatively affect your hearing.
If you’ve been following the market news lately, you probably wish you had one of these for Wall Street. There’s been plenty of noise lately and, frankly, I wish there was a mute button.
This was very evident just last weekend. While perusing the latest edition of Barron’s (a trade mag for professional stock investors), one could not help feeling less optimistic about stock investing over the next year.
Here are some excerpts from various articles:
- An inverted yield is signaling a recession is on the horizon.
- The trade war continues to weigh on markets.
- “Stocks” are overvalued.
- Lower U.S. rates reflect the negative global conditions, notably the $13.26 trillion of negative-yielding bonds.
- “Politics are really playing a much bigger role than in past market cycles.” A healthcare executive and physician from Scottsdale, Ariz., said she would be more bullish on stocks, but “there is so much uncertainty in the political environment and it’s just grinding us to a halt.”
- A whopping 99% of money managers expect the market to react negatively if Warren wins the election. Close to two-thirds predict a positive reaction from a Biden election victory, while 84% expect the market to go up if Trump wins another term.
After seeing all these comments, it’s no surprise that in the latest Barron’s “Big Money” poll of 134 money managers, only 26% of them were “bullish” – the lowest percentage in nearly 20 years.
A poll of 1,000 individuals wasn’t much better; the bulls’ ranks shrank to 29% this Fall (from 40% in April). To add fuel to the fire, Goldman Sachs released a note October 25 in which it said the rush from stocks to cash/bonds is the biggest since 2008.
Wow. Sounds bad, right? Is this a sign of things to come? Well, maybe and maybe not.
Mostly, maybe not.
Yes, I agree, if enough people subscribe to the same narrative it becomes a self-fulfilling prophecy. In fact, Nobel prize-winning professor Robert Shiller just wrote a book on how these “stories” go viral and impact investor confidence.
Shiller also says, however, that this is a short-term reaction; things look much better when we project out five to 10 years.
Price vs. value
Are stocks expensive? It depends on which “stocks” you’re talking about.
Yes, it does appear U.S. blue-chip large-cap stocks – primarily the ones in the technology sector – are richly valued. Amazon is trading at 80 times its earnings! That’s expensive. A normal stock trades at 16-18 times its earnings. But, when you venture outside the most well-known company names in America, there are other investments and sectors selling at more reasonable prices.
No doubt, the trade war is causing problems; however, where one person sees problems, another sees opportunity.
Emerging markets are trading at a significant discount to the U.S. markets – one that hasn’t been seen in nearly 20 years. This is mainly due to the trade war’s impact on China and its trading partners. However, China isn’t going anywhere despite the trade dispute. They have 1 billion people and their consumer spending is growing at 8 – 9% annually.
The political and economic headlines coming out of Europe seem bad, too, and European stocks are trading at a significant discount right now. However, the MSCI index of European companies are expecting earnings growth at a rate close to the U.S. next year.
In other words, many dominant businesses, based outside the U.S. with great economics and proven management, are essentially available at sale prices.
What about the 2020 presidential election?There’s no academic research to support the relationship between the political party and the performance of the stock market. In addition, inverted yield curves and negative interest rates aren’t reliable indicators of stock-market performance.
What’s the moral of the story? Everything you’re hearing is noise. If you listen to it, and react by making an investment “bet,” you’ll most likely regret that decision.
We try to think like the Warren Buffets of the world – keep a deep valuation discipline by identifying areas where good, profitable businesses are trading at attractive values. When we focus on the next five to 10 years, we see plenty of opportunities.
Thus, you’ll watch your portfolio favor the less-talked-about investments, like banks and chip manufacturers, as opposed to Facebook and Amazon. Not to say these are bad companies; they’re just trading at premiums.
Remember the old adage: Good companies aren’t necessarily good stocks.
So, as you see prognosticators starting to publish predictions for 2020, please view them with a healthy dose of skepticism. They are “noise levels” that could harm your investment health. Focus on your long-term well-being and ignore them. Or if necessary, hit the mute button.