Market Observations
Opportunity in the Market
If this is your first time reading these posts, thank you for reading. I have a passion for the markets and people. In writing this weekly post I am able to keep myself accountable by diving deeper into topics than just headlines and hopefully provide you some value in your own research or interests. None of the following should be considered financial advice.
I believe money is a tool, given from God, to accomplish his purposes. The Bible has 2,350 verses about money. How should we handle our money knowing it is a topic of upmost importance to God? Did you know that investing is Biblical? The Bible calls us to be both stewards and multipliers of money (Matthew 25), as well as generously open handed with our money (Proverbs 11), but ultimately the Bible calls us to be on guard against this tool attempting to fill a hole in our heart that only Jesus can fill (James 3 - Exodus 20 - Matthew 6).
Regarding my passion for people, I believe we live in a time period that will be looked back on as an information and entertainment glut. While entertainment in itself is not bad, entertainment in subjects like economics, politics, and public information (news/MSM) is slowly eroding a generations ability to think critically for themselves, me included. Gen Z is now nicknamed “the anxious” generation, this should be no surprise as 7+ hours a day are spent in gazing/scrolling into the comparison trap.
Today, you will see 5,000+ advertisements, targeting your deepest vulnerabilities to drive you to make decisions, or condition you to make a decision into the future. This weekly article has no strings attached. I am genuinely interested in the pursuit of critical thinking and learning for both myself and you, so we can be better stewards of money.
Reach out to me anytime.
Stock Market Is Ripping
That’s right folks, the market is now sustaining levels above 6,000 on the S&P 500. What a time. This is on the back of continued hopes of Trump deregulation, an end in sight to overseas conflicts, and continued earnings growth.
The above chart shows the market gains this week, while the below chart is the historic PE ratio, which is a good indicator on where the market is valued. It is important to note, the PE ratio never concludes in a buy or sell decision. I always view is as a gauge on how much investors are willing to pay for the earnings of a company. A lot of times investors will flip the PE ratio around to look at ‘earnings yield’.
A PE ratio of 15 indicates a 6.6% earnings yield (1/15). Today the market is at a PE of 31 indicating a 3.2% earnings yield (1/31). Taking out the 2020 period for the market stimulus that occurred, you can see below investors are more willing than the 2008-2023 period to pay higher prices for corporate earnings and are okay with a lower earnings yield.
As I mentioned, I don’t view this as a sell decision, because one thing I know is the market can stay irrational longer than I can hold out for a pullback or crash to invest at cheaper prices. (Keyens quote)
The WSJ wrote a good article this week on stock prices and dividends. The article summarized after a massive run-up in AI related companies this year, consumer staples and utilities and even some discretionary dividend growers have been left behind at reasonable prices. This is true, and I have written about the staples sector for a few weeks mentioning it looks interesting. It is a great balance between high risk of speculative tech and low risk of bonds with little returns. Growing dividend yields are one of the best market strategies.
Looking Forward
This week will be filled with more earnings reports from retailers and software companies as well as November inflation data. Inflation has continued to prove difficult to reach the Fed’s target of 2% year over year. CPI is expected to be around 2.7% this week.
With the consumer staple sector made up of many retailers, this week should prove to be important as earnings calls will provide outlook into the end of the year. Christmas of course is always an important time of year for companies like WMT 0.00%↑ COST 0.00%↑ TGT 0.00%↑ LOW 0.00%↑ HD 0.00%↑ etc.
Not related to staples necessarily, but I am holding out for DR Horton DHI 0.00%↑ to realize the massive supply demand imbalance in single family homes.
Thank you for tuning in this week and hope that it has provided some value and sparked some thinking!