Market Scorecard
Figures provided above are estimate and for illustration purposes only
Monthly Commentary
The S&P 500 jolted higher in November along with other markets putting up a +3.07% return and bringing YTD returns in the index to over 20%. The House and Senate both passed their own forms of tax legislation during the month which contributed to the gains. Ultimately, the final bill will need to be negotiated before it can be put before the President. Until the final bill is written, I don’t want to speculate on what it’s going to look like since every news outlet and research firm has conducted exhaustive research on this already. Goldman warns that market valuations are at their highest since 1900. They were quoted as saying “It has seldom been the case that equities, bonds and credit have been similarly expensive at the same time, only in the Roaring ’20s and the Golden ’50s,” Goldman Sachs International strategists including Christian Mueller-Glissman wrote.. “All good things must come to an end” and “there will be a bear market, eventually” they said.
490 of 500 SP500 companies and all 100 of the Nasdaq companies have officially reported Q317 earnings with year-over-year EPS growth for the SP500 in Q317 was +7.0% and year-over-year EPS growth for the Nasdaq in Q317 was 21.3%. This should bring valuations in the markets down slightly. Combined with tax reform, the market may be backing off slightly from its incredibly high valuations. Other recent US economic data has been strong with durable goods at a 37 month high, capex at 65 month high, new home sales at 120 month high, ISM services at 147 month high and ISM manufacturing at a 161 month high.
Bitcoin and other crypto assets are surging and are the talk of the town. As of the time of my writing this, bitcoin is closing in on 12,000. While I believe in the value of cryptography/blockchain and it’s ability to transform certain industries, I’m much less bullish on the crypto assets themselves. Everyone seems to be talking about it which scares me. While everyone talked about the internet in 1999 as a way to transform business, lots of people lost a lot of money on stocks than were pure vapor. A lot of similarities between 1999 and today exist in the crypto market. Again, I believe in blockchain similar to the internet, but don’t think most crypto assets will be around in 3-5 years.
My 2 Cents:
While things are looking pretty good, there are many cracks appearing under the service which I have highlighted in a different blog, Charts that frighten me. Things are near the point, at the point or past the point of when good data starts to become less good. I would be very cautious and not get sucked into the market because of FOMO. If you’ve missed the run-up, you will have an opportunity to buy during the next downturn which will happen at some point in the near future. If you’re invested, hang on since the ride is going to get bumpy.
Charts, Charts & More Charts
Duration in a bond portfolio is very important. If you don’t know yours, find out! Or better yet, hire someone who understands what this means. Essentially, whatever your duration will be your gain or loss in % terms if interest rates rise 1% on bonds with the same maturity. Sorry if that’s a mouthful but it’s a little complicated. Basically, if interest rates on bonds in the corporate bond index go up 1%, the value will decrease by over 7% as noted above. If the index only pays a coupon of 3%, you’re down 4% net. The way I read this, risk is gone up and reward has gone way down at exactly the wrong time (IMO). 
I hope you enjoyed this months financial markets update. If you have any questions please contact us directly. If you’re interested in a topic that you’d like us to address, please email us so we can include them in future updates.
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Jared Toren
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