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The Long Term View


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#31 Rich C

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Posted 19 September 2018 - 12:15 PM

Second quarter GDP came in at 4.2% on the second estimate in late Aug.  The Fed meets next week and is expected to raise the funds rate 1/4%, but the market is expecting it so I don't think there will be much reaction.  Market valuation climbed a bit in Sept., with the 12 month trailing GAAP S&P 500 P/E up to 23.7 because Q2 earnings have been set for a while and the market has rallied a little.  23.7 is moderately overvalued relative to my 30 year trimmed average of 19.  Earnings are expected to be up 20% YoY for Q3, with about half of that coming from the tax cut.  Geo-politically the major risk is the trade wars, particularly with China.  The tariffs are hurting some companies significantly, but apparently not the majority of US businesses.  Price action is flat for Sept, but remains solidly within the up channel it has been in for most of the last decade.

 

Conclusion: The long term bull market continues. 

 

More details on my blog, the link is below.


Blogging at http://RichInvesting.wordpress.com

 

My swing trades typically last a couple of weeks to a couple of months and I focus on SPY.


#32 Rich C

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Posted 17 October 2018 - 10:30 AM

The third estimate of Q2 GDP remained at +4.2%, and the Oct. 12 GDPNow estimate for Q3 GDP is 4.0%, so no recession in sight.  The Fed raised rates by 1/4% at their Sept. meeting to 2.1%, and the long end of the yield curve moved up a little more than most expected, which triggered a correction.  This seems typical for late expansions, the Fed raises and eventually someone notices.  At this point, the market usually corrects, then realizes this level of rates is not a long term threat to the market, that will come later after more hikes (the Fed is hiking very slow, only 1/4 point at a time, in the past they have gone 1/2 point and from a higher base).  The trailing 12 month GAAP PE fell from 23.7 to 22.2, based on the market correction, and relative to my 30 year trimmed average of 19.  The administration has struck a deal with Mexico and Canada, the USMCA, and while it probably won't drive GDP, getting the uncertainty out of the way is a plus in the short term.

 

The housing market is weak right now.  Thirty year fixed mortgages are up to 5%, and while that is not historically high, home prices have inflated faster than wages, so the combination of 5% mortgage and rising rates, with higher prices is going to start disqualifying more and more buyers.  If you need to sell your house, and you can't make rates come down, you will have to drop the price on your house.  Will the slowdown in housing spread to the broader economy? 

 

Conclusion:  The long term bull market continues, but a few concerns are out there.


Blogging at http://RichInvesting.wordpress.com

 

My swing trades typically last a couple of weeks to a couple of months and I focus on SPY.


#33 Rich C

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Posted 21 November 2018 - 12:56 PM

It's that time of the month, to take a look at things.  Earnings season has gone very well, with S&P earnings up 25% over last year.  With the drop on stock prices, this has taken the trailing 12 month GAAP P/E down to 20.8 from 22.2 last month, relative to my 30 year trimmed average of 19.  Interest rates rose a bit after the Sept. hike, but with the stock market correction rates have returned to their Sept. levels on the longer end of the yield curve.  Technically, on the long term chart, RSI has fallen from overbought to neutral, MACD has headed down, and price remains in the long term channel it has been in for the last seven years.  Geo-politically, the major issue is our trade dispute with China, which causes real pain in certain industries domestically.  The rising interest rate environment has slowed housing.  We've had 5% mortgages before, even 8% and 10% mortgages, but we have not had those rates when the median home price was $320K.  Home prices can inflate at a more rapid rate than the general economy as long as rates remain ridiculously low, but when they rise sufficiently, that creates a problem in housing.

 

I conclude that the long term bull market continues, but risks are rising.


Blogging at http://RichInvesting.wordpress.com

 

My swing trades typically last a couple of weeks to a couple of months and I focus on SPY.


#34 Rich C

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Posted 19 December 2018 - 11:09 PM

The second estimate of 3rd qtr. GDP was 3.5%.  The Fed hiked the funds rate a quarter of a point today to 2.5%, but said for 2019 they will hike twice instead of the previous expected three times.  Drops in longer term interest rates have flattened the yield curve a bit.  The trailing 12 month GAAP P/E on the S&P 500 fell to 20.3 from 20.8, relative to my 30 year trimmed average of 19, just slightly overvalued.  Technically, the market has fallen a bit below the bottom of the bullish upchannel it has been in for over 6 years, which is a significant caution sign for a long term investor.  The China trade war represents the biggest geo-political risk and we all await signs of progress in the 90 day negotiation taking place currently.

 

For a long term trader willing to ride out some rough spots, its still a long term bull market.  However, the risk has risen and if weakness continues down and lasts longer, it could turn into a bear market.


Blogging at http://RichInvesting.wordpress.com

 

My swing trades typically last a couple of weeks to a couple of months and I focus on SPY.


#35 Rich C

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Posted Today, 05:19 PM

The third estimate of Q3 GDP came in at +3.4%, a good reading.  GDP now is estimating 4th quarter GDP to be +2.8%, giving us a +3.1% year.  The Fed has made more dovish pronouncements since Powell's hawkish interpreted statements after the Dec. Fed meeting where they hiked by a quarter percent.  Valuation has moderated over the last 4 months to very near the long term average P/E ratio, so the market is not overvalued.  Factset projects earnings to come in 10% above last year for Q4, the 5th consecutive quarter of double digit gains, but also the lowest percent increase of the year (other y-o-y increases were in the 20% range).  In Dec. the market dipped below the lower band of rising channel the market has been in for several years, but the Jan. recovery has almost gotten us back into the channel.

 

It is clear we've had a significant correction.  It is not clear to me that the market has fundamentally changed into a primary bear market.  That could materialize in the next few months, but right now, I think the primary bull market that started 10 years ago remains in effect.  There are more details in the blog, link is below.


Blogging at http://RichInvesting.wordpress.com

 

My swing trades typically last a couple of weeks to a couple of months and I focus on SPY.