Eq: Total Market
A lot of investors are nervous to put their money back in markets. The big losses of December have given way to a great start to the year, but investors are still shy because of the volatility. Well, JP Morgan says investors need to get back in markets soon as waiting for analysts to turn bullish again has a history of being a poor idea. Generally speaking, analysts can be a year behind actual market moves, so if investors wait until the mood improves, they will have already missed out on a lot of the gains.
FINSUM: Worries about forthcoming earnings aside, the market definitely has a renewed spring in its step and we are generally feeling bullish given the now lower valuations.
A terrible December and then a great January. There is certainly reason for optimism on shares, but investors may well be nervous after a such a dramatic swing. February is not traditionally a very strong month for stocks, but this year could be different. That is for two reasons. The first is that February tends to mimic January, and secondly, because the Fed has just made a historic u-turn on rates, which should provide much smoother sailing.
FINSUM: The other big factor here is that p/e ratios have fallen dramatically over the last year because of the big move lower in stocks and the healthy gains in corporate profits. We are increasingly optimistic.
December was the worst month for stocks since the Financial Crisis. It was a bleak for almost all investors. Then something magical happened—we just had the best January in thirty years. Forget the shutdown and the polar vortex, the S&P 500 rose a whopping 7.9% in the month. Banks and smaller companies did particularly well, outpacing the broader market. The market has been calmed by much more soothing language from the Fed, which has lessened fears about a recession.
FINSUM: What a month it was for stocks! We think the market had a very healthy correction which put earnings multiples back into a reasonable place, and there is a much better runway from here.
BAML has put out a report chronicling a new outlook for stocks, and it isn’t pretty. The report shows that investors have the worst views on the markets in a decade. Investors are pessimistic about global growth and corporate profits, the combination of which makes them expect a weak equity market. Here is a summary of Bank of America’s report: “A poll of asset managers showed a net 60 per cent of those questioned think growth in gross domestic product will weaken over the next 12 months, the worst outlook on the global economy since July 2008 and below the trough in January 2001”.
FINSUM: So it is important to note that these are asset manager opinions, not individual investors. Accordingly, it may not be as much of a contrarian indicator as usual.
Climate change risk has slowly but surely crept into the consciousness of even the most mainstream investors. As its prominence has risen, so too has its ability to impact share prices. With that in mind, here are some of the individual shares most vulnerable to such risk. The names are not what you would expect. For instance, Norwegian Cruise Lines and Royal Caribbean Cruises, along with pharma companies Merck and Bristol-Myers-Squibb were identified as the most at risk. “There are many ways to measure how climate change affects your portfolio. One is to see how the physical facilities of the S&P 500’s constituent companies are affected by hurricanes, sea-level rise, and heat stress”, says Barron’s. One head of ESG commented on the list that “you’re exposed” no matter where a company has its headquarters”.
FINSUM: Norwegian is most exposed because it has so many facilities in Miami, where the risk of rising sea levels is very high. Sorting out these risks is a major challenge and it would behoove advisors to seek out the main data providers for such risk, like Four Twenty Seven.
With the market still facing some volatility after last month’s beating, some investors might be inclined to seek out stocks that may stay relatively safe from big moves. One strategy for doing so could be to look for companies with low debt. Low debt brings greater financial flexibility to companies and generally makes investors much less worried about their ability to meet their obligations. According to Barron’s “Stocks of firms with low debt have outperformed those with higher debt by about one percentage point a year for the past 25 years … Low debt companies are also less volatile than the overall market, on average”.
FINSUM: This seems like a good parameter by which to carve out a safer portion of a portfolio, though as our readers will know, we generally don’t like using historical returns alone as a guide.