2014: The Year the Stock Market Topped Out?
To close off the week, I’d like to offer some words of wisdom from my old friend Tony Jasansky, P.Eng. Tony has spent more than 40 years studying and analyzing the markets. He’s one of the best stock market analysts I know. Here’s what he has to say about stocks right now…
“The only obvious difference between Janet Yellen, the incoming Chair [of the Federal Reserve], and the present Chair, Ben Bernanke, is in their gender. Investors who have loved Bernanke’s monetary abandon are already placing their money on Janet being just as energetic in keeping the money pump going. In recent days, both of them emphasized that the Federal Reserve will keep interest rates low even after the monthly $85.0-billion bond purchases have wound down.
With commodities including gold in a bear market, and the bubble in bonds waiting to be deflated by the Fed’s soon-to-end bond purchases, stocks are still seen as the ‘best game in town.’ The five-year bull market probably won’t end until it reaches a bubble stage, comparable to the 2000 and 2007 tops. Observing the recent changes in indicators measuring the degree of investors’ fear and greed, my wild guess is that 2014 will be the year of another big top.
Last month, I said the overbought market conditions, measured by the price and breadth indicators, pointed to a short-term correction. Instead of the expected ‘healthy correction,’ the U.S. market moved sideways for two weeks before resuming its uptrend, lifting most indices by another 3%.
The resumption of the uptrend and the successive daily highs hit by virtually all major U.S. stock market indices have had a predictable impact on the Sentiment group of indicators. Bullishness towards stocks is getting close to the type of bullishness we see at extended stock market tops.
The generosity of the Federal Reserve and stable corporate profits, also helped by the historically low interest rates, continue to keep my Fundamental/Monetary group firmly in the bullish zone. With the benefit of hindsight, over the last four years, I could have saved myself the work of analyzing the market by paying attention only to the Fundamental/Monetary group while ignoring all other ‘distractions.’
The Technical group, which was already bearish four weeks ago, has lost more ground. The sell signal from my technical model that numerically compares the relative strength of the DJIA [Dow Jones Industrial Average] to the NYSE daily breadth and volume further contributed to the decline in the group. The declines in the Technical and Sentiment groups have moved me into [the] bearish zone. Considering the deterioration in daily and weekly indicators, I would be selling during the traditional year-end seasonal rally instead of buying stocks, as 2014 will be a very challenging year for stock market investors.”
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Michael Lombardi founded investor research firm Lombardi Publishing Corporation in 1986. Michael is also the founder of the popular daily e-letter, Profit Confidential, where readers get the benefit of Michael’s years of experience with the stock market, real estate, economic forecasting, precious metals, and various businesses. Michael believes in successful stock picking as an important wealth accumulation tool. Michael has authored more than thousands of articles on investment and money management and is the author of several successful investing publications,... Read Full Bio »
Forecasts Aug. 29, 2015
Immediate term outlook:
The bear market rally in stocks that started in March 2009, extended because of unprecedented central bank money printing, is coming to an end. Gold bullion is up $1,000 an ounce since we first recommended it in 2002 and we are still bullish on the physical metal.
Short-to-medium term outlook:
World economies are entering their slowest growth period since 2009. The Chinese economy grew last year at its slowest pace in 24 years. Japan is in recession. The eurozone is in depression. With almost half the S&P 500 companies deriving revenue outside the U.S., slower world economic growth will negatively impact revenue and earnings growth of American companies. Domestically, America’s gross domestic product grew by only a meager 2.3% in the second quarter, which will negatively impact an already overpriced equity market.
Estimates Aug. 29, 2015
|Trailing 12-month EPS for Dow Jones companies (Most Recent Quarter)||$1014.15|
|Trailing 12-month Price/earnings multiple (Most Recent Quarter)|
|Dow Jones Industrial Average Dividend Yield||2.71%|
|10-year U.S. Treasury Yield||2.14%|