It’s the Season To Go Shopping for Stocks
In what has probably been our worst call of the year, Financial Watch declared the rally dead about a couple weeks back. The data coming out lately is just too good to ignore any longer. Housing is starting to slow down, but the stock market is jumping at the opportunity to create wealth. We did not foresee the quick transition and am interested to see whether is can stay in place long-term. However, for the time being valuations and seasonal patterns are too good to ignore. The Dow will hit the elusive 11,000 mark in a matter of weeks and at that point the bull market will be off and running.
Even with the recent rally, the S&P 500 averages a price/earnings multiple is just over 16. This is half of where it was in the late 1990’s and near its historical normal. Interest rates are low and should maintain their downward pressure for at least another couple years. Stocks would need to be priced at a multiple of more than 22 to hold the same yield as long-term bonds. That would mean we would need to see stocks appreciate by another 37%. It won’t happen for a long time, but Financial Watch expects to see stellar gains for the stock market throughout the rest of the year. It is not unrealistic to see the Dow approach 11,500 during the coming month.
Special Note: Selling stocks too early might have been our worst call of the year, but our readers will also know we have been recommending exposure to the financial and technology sectors. Those two sectors have been on a roll. In an additional, we suggested our readers consider buying exposure to gold in mid-October. In spite of the stock market rally, gold has outperformed the S&P 500 by a fairly substantial pace since then. So if anyone took our advice, it might be time to take some profits in gold and buy some tech stocks. As always, consider your personal portfolio goals and remember we are not professionals here at Financial Watch.