A week of rally days following the end of the Washington impasse has pushed the stock market to record levels. But too much and too fast, as the pundits correctly warned. The euphoria over the temporary Debt Ceiling “solution” made almost every investor giddy with visions of higher prices all the way to year’s end. However, because China and Europe still have serious economic issues to deal with (which affects the U.S. economy), our stock markets corrected slightly today. A continued correction may be in the cards.
A touch of reality would be a good thing, and a U.S. stock market that retreats with a healthy consolidation would be welcomed.
Valuation is critical to the stock markets. With recent record highs, the U.S. stock market is about 17 times 2014’s projected earnings of $103.00 for the S&P 500 companies. This is too high. Earnings must meet these expectations, but so far the picture is mixed. Therefore, a pull back of stock market prices to lower valuation levels would be a healthy development that could attract more investors to take more equity risks.
With the nomination of Janet Yellen as the next Federal Reserve Chair, longer duration bonds should command lower rates and higher prices. We have changed our TSOA Retirement Account allocation to a slightly increased allocation in the Intermediate-Term Bonds. Please click here to see that change.
Have a good week!