Tahoe market Pulse: First quarter review – and a look ahead
The first quarter was one for the books, the record books that is. Stocks had their worst-ever start to a year. By February 11, the day of the low, stocks were down 10 percent and were 14 percent off their 2015 high.
From there they had their best in-quarter turnaround since 1933. When all was said and done stocks were about unchanged for the quarter, helped in late March by Fed chair Janet Yellen.
Janet Yellen assured investors and bankers that future rate increases will proceed slowly in view of global weakness and the lack of inflation pressures. You don’t say.
Investors figured that out months ago, which is why the financial futures market didn’t reflect the four rate boosts she told us to expect this year. The market dictates to the Fed, not the other way around. Now it anticipates one boost, maybe two.
Preferred stocks, which we’ve said are especially attractive in the current environment, rallied. Investors are realizing that it doesn’t make sense to wait years for more attractive rates. They’ll take what the market offers now.
Once again those who panicked when stocks fell missed the recovery rally. That’s been the case for seven years. Until yields on bonds and other vehicles become more attractive, stock sell-offs will be brief. Money has to go somewhere.
If not into stocks with solid returns, where? Money-market funds and CDs pay virtually nothing and that won’t change soon. Treasurys of all maturities pay little.
Some preferreds and exchange-traded debt yielding more than six percent are attractive, but prices are rising and yields are falling. The buy list is getting smaller. So stocks it is … and stocks it will be.
That said, the subdued near-term outlook for earnings and GDP growth is making stocks appear a bit overvalued. That is why stocks remain in a 20-month range.
The bottom line: I see no catalyst for much higher stock prices, nor one for a bear market as long as interest rates stay low and GDP growth is modest at best.
In other words, more of the same sideways market in which dividend payers and raisers will continue to do well.
I’ve been writing that for years now. Seven years is a long time for a bull market and few have lasted longer. True, but bull markets don’t die of old age. They end amid euphoria and extreme overvaluation. No signs of those now.
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 adviser before purchasing any security.
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