We’ll start with our views on the U.S. stock market, then briefly touch on some broader U.S. and global issues, then close with a summary of how it all ties together.
In general, we find the market is fully priced. Some sectors appear quite expensive (utilities come to mind), while others are less so (energy). If the market were a new car, you’d be paying the sticker price to buy it today—no incentives, no dealer reductions, nothing—the sticker price. So we’re not very interested in buying the market at today’s price. We keep looking for bargains (we are always looking for bargains), but we’re not finding many. Many of the companies we own are no longer cheap and are no longer “buys,” but we’ve found it profitable over the years to leave well enough alone with stocks that are doing well, watching closely for a change in the price momentum as a signal to sell. That’s what we are doing today. There are reasons to believe momentum may reverse; margin debt, for instance, had been growing for years, but is now holding steady. If it declines, it is likely stock prices will, too. There are also reasons to believe upward momentum may continue. Savers and investors in both Japan and Europe are being punished with historically low, even negative, interest rates and are looking elsewhere for better returns. If their money comes to the U.S. markets, it could well continue to drive prices up for a time. There is no clear market direction right now and we are watching closely to see what develops. Continue Reading »