Movin’ on up

Sir John Templeton – “Bull markets are born on pessimism, grow on skepticism, mature on optimism and die on euphoria.”

The market ended its best week in 4 months, with the S&P500 having set another new record high. (The S&P 500 has now more than tripled from its 666 low of March, 2009.) A couple direct reasons for the recent gains were continued easy money policy by the Fed and many more US economic reports showing continued improvement. The trend continues to be our friend, as they say.

We also had a seemingly increasing number of sources claiming that we must have a drop-off since prices are “so high”. And many investors, still healing from 6 years ago, tend to read drop-off as crash. Drop-offs are part of the deal. Individual stocks possess the ability to drop at any time for no apparent reason – happens every day. However, stocks as a group don’t crash only because they hit all-time highs. Business cycles and bull markets don’t end because too many days have passed without bad news or a market decline. They do so, as Sir John notes above, because important drivers of economic growth and/or financial market value have reached unsustainable valuations.

I agree with what Josh Brown wrote in a post last week on The Reformed Broker, “I blame the Internet for this state of investor apathy and anxiety. The deluge of Web warnings, along with post-crash traumatic stress syndrome, has investors obsessing over the next market meltdown. The endless parade of crash calls, negative omens and recession warnings plays into these fears. Never before has there been so much misleading content so freely offered by so many unqualified fear mongers…much of the public is wholly unable to place this information in the appropriate context.”

Over the years since 2008, we’ve had many “scares” based on geopolitical events, political events and who knows what else. The truth is that, and as was demonstrated by our market results since then, most of those things have minimal effect on the revenues and earnings of companies. Those two are the things that really count for stock price appreciation – or the lack of same.

Here are a couple excellent examples of that.

Big week for Apple and Google

Last Thursday, Apple hit a new all-time, post-split high. Monday was happy tenth anniversary for Google. I bring these up as two of the best examples of owning shares in the great businesses of the world – even though those businesses may see slowdowns, from time to time.

Google’s price initially was $85 in 2004. Between its fourth and fifth anniversary, (2008- 2009), that price had dropped back below $300 – down from more recent highs. Friday, also according to itself, those shares ended at over $580 per share…after having split 2 for 1 effective this past April.

As for Apple, in April, 2003, it was about a dollar a share. In January, 2009, it was selling at about $80/per share. The new all-time high price this week above $101/share was also after their recent 7 for 1 split…

We all know that these two are hardly the norm. We also know that their respective prices have been all over the place. What they represent to me is the reason why you stay with your high-quality, asset allocation strategy over time.

Climbing the wall of apathy

You know, in 1999, everyone was excited about the milestones in the market. Back then, no matter where you went, it was as if TV’s were all tuned to some investment show, with the national media celebrating every new high as if it had special meaning…other than being a new high.

Today, we’re in some sort of middle world where apathy and ignorance regarding all things market seem to be in great abundance. Consider this recent bit from the Gallup Organization.

Gallup reported earlier this month that only 7 percent of those surveyed were aware of last year’s major gains in the S&P500. “Fewer than one in 10 aware that stocks averaged 30% increase in 2013,” read one of their headlines. More than half of those polled said they would put any new cash into bank accounts or CDs – not stocks.

And yet…also this past week, Vanguard announced that their Total Stock Market Index fund is now the biggest mutual fund in the world. And the main US stock index hit an all-time high. Kind of flies in the face of the survey. Confusion reigns…

About the trend

I’m referring here to the trend of positive economic news which helps to support stock prices. Without boring you with more details, this past week we learned the Index of Leading Economic Indicators rose again. Initial jobless claims continued to move lower. Housing starts, building permits and confidence among home builders themselves all rose nicely. And US industrial production has also reached a new, all-time high.

The economic growth that’s been off a lot of folks’ personal radar is now making itself known in a demonstrable manner. It can’t be ignored much longer. As a result, interest rates will begin to rise to reasonable/normal levels. These together should help folks feel much better about the prospects of both themselves and the economy.

At this part of the market cycle, most of us have moved well past pessimism and skepticism (save for those that have been wrong the entire way up). Most everyone realizes the improvement is underway. During this stage, the big-name growth stocks tend to do well as growth is rewarded with higher share prices. The value stocks in which so much has been invested over the past five years – utilities and telecom, primarily – will likely underperform in share price growth.

I suggest that as consumer and investor confidence continues to rise, that is transferred to the willingness to pay more for those growth earnings. So, review your holdings and seek those opportunities before we rise lots higher.

Cheers!

Mike

509-747-3323

Securities and Investment Advisory Services offered through KMS Financial Services, Inc.

To get an overview of economic conditions, use this link. It’s updated monthly.http://www.russell.com/Helping-Advisors/Markets/EconomicIndicatorsDashboard.aspx

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