Tahoe Market Pulse: A market review … and preview
Investors are used to volatility, but with the exception of the few days after the surprising Brexit vote, the market has been pretty quiet.
The two-day Brexit plunge followed by a quick rebound illustrated how dangerous such knee-jerk selling can be. Good security selection is far easier than trying to jump into and out of the market. Preferred stocks gave no ground and dividend paying (and raising) stocks performed better than the S&P 500 on both the down and the up days.
And what about those who sold stocks in a panic and are now out of the market? Do they continue to wait for a pullback? I know of some investors that have been on the sideline for years waiting for lower prices. Do they now buy higher than they sold?
Most people won’t. Call it human nature. The sellers are discovering that money has to go somewhere, as I keep repeating. Far too much is on the sidelines. Trillions. Where should it go? High-yielding stocks will continue to attract more and more.
Investors agree. As of last week the S&P 500 remained in a trading range, but dividend paying ETFs (Schwab Dividend Equity, Vanguard Dividend Growth, ProShares Dividend Aristocrats, PowerShares Low Volatility, etc.) were at all-time highs. The dividend payers are not in a trading range.
Wharton Prof. Jeremy Siegel said the move to dividend payers is only in its first inning. Why? He and former PIMCO head Bill Gross say the “new normal” for interest rates will be 2%, not the old 4%. For how long? Siegel thinks five to ten years. He’s still bullish for the overall market, provided earnings growth accelerates later in the year or early in 2017. I agree with him there. Earnings growth is the mother’s milk of a bull market.
Research shows that the overall market peaks between three and six months after the utilities top out. The market also peaks long after the market’s Advance-Decline Line peaks, too. At the end of the quarter, both the utilities and our own stocks-only Advance-Decline Line closed at new highs. A major market top is not eminent.
Here’s my view: it is hard to make a very bullish case given today’s valuations and realistic prospects for earnings growth. Then again, what with such low yields on CDs, money-market funds and investment-grade bonds, it’s hard to make a bearish case for quality stocks, especially those with good yields and dividend growth. Let’s stay overweight to the dividend payers and dividend raisers. For the foreseeable future, there will be no alternative.
David Vomund is an Incline Village-based fee-only money manager. Information is found at http://www.VomundInvestments.com or by calling 775-832-8555. Clients hold the positions mentioned in this article. Past performance does not guarantee future results. Consult your financial advisor before purchasing any security.