Market Pulse: Giving thanks … a lot of thanks
November 27, 2013
Watching the evening news, listening to talk radio, or reading blog posts can be depressing. There is a lot of bad news out there. That's because bad news sells.
Focusing on what is good would never win the ratings game. On this Thanksgiving, our focus is on what is working … and there is a lot to talk about.
Of course what we can be most thankful for is the advance in the stock market, and it's been a great year. Investors are only now realizing that stocks are strong. The S&P 500, which has advanced 165 percent from the 2009 low, is up 26 percent in 2013 and that is understating the strength of stocks. The S&P Mid-Cap index is up 28 percent and the S&P Small-Cap index is up 37 percent!
The size of the federal budget deficit is a major concern, but little covered is how quickly the deficit is improving. In 2009 the deficit as a percentage of GDP was 10 percent and this ratio has improved every year and sits at 4 percent.
That is where it stood in most of the 1980s and early 1990s. Sequester cuts and increased taxes play a role, but the improving economy is what matters most. Imagine what could happen if the economy grows faster!
The financial media often talk about bubbles and claim stocks are wildly overvalued. Wrong. The S&P 500's price-to-earnings ratio stands at 16, which is near its historical average.
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Major market tops don't occur when stocks are fairly valued, they occur when stocks are very overvalued (1999 PE was 28 and 2008 PE reached 25). Through multiple expansion, there is a lot of room for stocks to move higher.
We can also be thankful that this column has been on the right side of the market. I told of the risks of Treasury funds (Treasury Warning Shot, 6/6/2013). Instead of joining the ranks of analysts that claim the market shouldn't be doing what it's doing, I've remained bullish.
From early articles (It's Okay to be Optimistic, 10/14/2010) to the many articles on TINA (There Is No Alternative to stocks) readers are benefiting from one of the best bull markets ever. I hope you are participating.
The constant barrage of bad news is a distraction for investors, but that is old news. Successful investors see what others do not and for now that is rising corporate profits in an improving economy, conditions the financial media are overlooking. Have a great Thanksgiving.
David Vomund is an Incline Village-based fee-only Registered Investment Adviser. Information is found at http://www.ETFportfolios.net or by calling 775-832-8555. Past performance does not guarantee future results. Consult your financial adviser before purchasing any security.
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