Might Want to Think Twice

US markets are on a tear but is it sustainable?

Title: Might Want to Think Twice

Abstract: US markets are on a tear but is it sustainable? Price-to earnings and price-to-cash flow multiples are on the high side relative to history, while dividend yields are no longer as attractive as they were. Investors may want to investigate potentially less volatile parts of the market.


The US equity market rally is broader than just a post-election pop, but is it sustainable?

Swanson: Investors may want to be wary amid high valuations and the potential for this economic upturn to fade like others this cycle.

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James Swanson says that there have been four economic upturns like the one we’re experiencing now within the current economic cycle but all of them have faded. Will this one?

Should investors investigate potentially less volatile market segments? James Swanson thinks US valuations are high and dividend yields are less attractive than earlier in the cycle.


US markets are on a tear but our James Swanson thinks the current rally may not be sustainable amid pricey valuations and contracting dividend yields.

The US economy has experienced an upturn in recent months but the four prior revivals this business cycle have faded. James Swanson fears this one might as well.

TEASER: The world's stock markets are running with a storyline. Does that storyline match up with the way valuations are today? For more information check out my blog.

VIDEO: The markets are on an upward tear. It’s midwinter 2017, the markets keep going up. People are calling this a ‘post-election rally’. Is that what it really is? I don’t think so.

The markets were actually moving up, particularly the S&P 500, well before the election – and why? Earnings were coming back from a slowdown, Japan was strengthening, China had been in a slowdown (those numbers are picking up), US exports have been picking up some, and the Euro Zone was doing better.  So all and all, the markets were really reacting to a speed-up in world economic growth, and the unemployment rate in the US kept falling during this period.

So this is not an election-specific rally that we’re witnessing in the market; it’s broader than that.  But is it sustainable? And that’s my worry right now. What am I telling investors?

I’m saying let’s think twice about where we are.  The S&P 500 is priced at a 21x earnings ratio.  That’s very high on the side of history.  Price-to-cash flow is also high from a historic point of view, and the yield on the market is no longer as attractive as it used to be. This suggests, to me, the markets are priced for really good news ahead, and we’ve seen four of these economic speed-ups in this last expansion, going back to 2009, and all of them have faded.  I think the markets are expensive relative to the news flow.  The news flow is alive with political risk. 

At this point I want our investors to think about conservation of capital, I want them to think about being wary about these markets, I want them to investigate less volatile places in the market like higher-grade corporate bonds.  We’re in a tricky situation here, and I think caution is the byword.

The views expressed are those of the James Swanson and are subject to change at any time. These views are for informational purposes only and should not be relied upon as a recommendation to purchase any security or as a solicitation or investment advice from the Advisor.

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