Michael Bowman, Executive Vice President and Portfolio Manager, Wickham Investment Counsel
FOCUS: North American Large Caps & ETFs
Market Outlook:
The S&P 500 is currently trading at a price to earnings (PE) of 17.96. The average is 19.44 so on a PE basis the market is not expensive. If we look at the short to medium term indicators, the Chicago Board Options Exchange (CBOE) Volatility Index equity put/call ratio is neutral as is the Relative Strength Indicator and the Arms index, which is commonly called the short term trading indicator.The Tick indicator is flashing an oversold market with readings of -662, -627, -673 and over the past three days. Readings of -300 are bullish and readings of -700 are extremely bullish.
In addition, the McClellan Oscillator is also showing an oversold market. All that being said, insider selling has reached a 15 year high. On the economic front, the news out of Europe is either bad or real bad. Since Europe is China’s largest export partner, no more can investors construct portfolios on the belief that China is a perpetual economic powerhouse. In 2012, China’s growth accounted for 60 percent of global growth yet today the China bulls have been shrinking along with steadily weaker economic data. As I have said in the past, China has more potential to destroy investment portfolios than any other geopolitical risk. Because of that, I don’t see Canadian commodities lifting their head off the mat anytime soon.
In the U.S., consumer sentiment unexpectedly climbed in August to the highest level in almost seven years reinforcing signs of a strengthening outlook for the latter part of 2014. The Federal Reserve is threatening to raise rates but there are those who don’t see that happening, and in fact, many see more Quantitative Easing. I find the whole interest rate discussion absurd. Rates have been near zero for years so why does the threat of a quarter point rise cause so much concern. As for higher rates, bring ‘em on.
It has been proven that what hurts portfolios are the unknown, and the surprise events. Going back 20 years history has proven that planned events have no bearing on the markets. Y2K, debt ceiling announcements, interest rate hikes, wars, all have no effect over the intermediate term. It is the tsunamis, and the 9/11s that can devastate portfolios.
It has been proven that what hurts portfolios are the unknown, and the surprise events. Going back 20 years history has proven that planned events have no bearing on the markets. Y2K, debt ceiling announcements, interest rate hikes, wars, all have no effect over the intermediate term. It is the tsunamis, and the 9/11s that can devastate portfolios.