Oct 19

With all the government meddling it's hard to read this market

By MultiplyWealth's Team

The stock market continued to move higher in September as the Federal Reserve decided to experiment with additional bond buying. I am aware that the Fed is forcing money into the stock and bond markets but, at least to me, it seems as though bubbles are being created and risks are being taken that are potential serious future problems. Increased government meddling in the private economy is not a wise course of action, and one which I believe will ultimately hurt investors.

Nevertheless, I must acknowledge that market trends are powerful forces and the current trend in prices is still higher. I have made some minor adjustments to my Market Comparables stock model to take this fact into account.

Earnings estimates for the S&P 500 Index (SPX) continue to decline, both for 2012 and 2013 but the weighted average is increasing as we get closer to next year, according to Thomson Reuters. It does seem very unlikely that we will come anywhere close to the estimates currently being used, so further sizable reductions in estimates are very possible. Earnings reports for the 3rd quarter will likely be problematic.

Valuation seems normal but only on the basis of the earnings expectations discussed above that seem much too optimistic.

Currently I am holding a very small stock position based on a market that is still trending higher but I continue to feel that the risk – reward equation is tilted seriously to the risk side. With the government actively meddling in the economy it has become very difficult to make future projections, but these are not market conditions that bode well for further stock price advances.

 

If you want to talk about how potential market events or the fiscal cliff might affect your equity portfolio, and perhaps talk about whether some of our defensive-minded investment strategies might be right for you, write Multiplywealth at notice@multiplywealth.org It’s your own account; you can see the balance change on a daily basis, make investment changes extremely quickly, and add to or pull your money at your complete discretion.

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