Hey Folks, for those of you in US markets we will be having a nice long Labor Day Weekend so I hope this gives you all time to recharge and energize for the craziness that is yet to come as we begin to close out a wild and crazy 2020.
Weekly Sound Bites;
• Markets saw volatility return last week, with Thursday seeing declines of 3% and Friday 1% giving the worst weekly performance since late June…Before this last week, the S&P 500 advanced for four straight weeks, with technology stocks leading the index to a new record high…In the final 2 days of this past week we’ve seen the erasure of over $1.7 Trillion of profits erased…The Dept of Labor released data last week showing initial jobless claims coming in at 881,000, beating analysts’ estimates with 1.4 million jobs added in August and 10.1% growth in productivity and unemployment rate coming in at 8.4%…
• At the beginning of this year, the five-largest stocks in the S&P 500 represented roughly 18% of the index’s market capitalization. This was up from about 12% three years prior, reflecting strong growth and performance among many of the large technology companies in recent years… Leadership from the mega-cap technology names has continued to accelerate this year, with the top-five names (Apple, Microsoft, Google, Amazon and Facebook) now constituting more than 24% of the S&P 500’s market cap…
• Rarely has the stock market’s relationship with the economic, social and political health of the country been debated to the extent it is today…Common sense leads us to believe that corporate valuations should be directly linked to the economy and quality of life issues…but as I have mentioned and consistently taught our User Group Members, this is not always the case… How much do we attribute stock gains to dividends and earnings growth in comparison to valuation expansion, or the willingness of investors to pay more for stocks? Or how do we account for the impact of Federal Reserve cuts in the interest rate, or various types of liquidity injections, on corporate performance or investor sentiment?
• Buffet has an indicator he is very fond of using which takes the Wilshire 5000 Index and divides it by the annual GDP and it is flashing red…it is currently at its highest level since before the internet bubble crash in 2000 with a ratio reading of 1.7, about 70% above its historical average of one…normally, this ratio is around 1, meaning that total market cap of all US stocks generally equals annual GDP….and when stocks are considered to be fundamentally overvalued, the ratio increases to 1.3, implying that the total stock market capitalization is 30% larger than GDP so you can see the reason it is flashing red at this time… As the father of value investing, Benjamin Graham, once said, “In the short run the market is a voting machine, but in the long run it is a weighing machine.” The metaphor suggests that short-term prices are driven by sentiment while in the long-term trends are driven by something you can actually measure more concretely – financial results…
Enjoy This Week’s Round-Up;
Don’t Be A Rat Brain Trader – Be the Red Stripe Zebra !!
Trade Smart !