Stocks Are EXPENSIVE, Yet A New Buy Signal Just Triggered | Lance Roberts & Adam Taggart
Oct 12, 2024
auto_awesome
In this insightful chat, portfolio manager Lance Roberts shares his expertise on the current stock market surge, noting it's one of the best starts in decades, yet caution over high valuations is warranted. He discusses a newly triggered buy signal, the implications of recent inflation data, and the importance of risk management for investors. They explore the psychological hurdles everyday investors face compared to professionals, emphasizing a disciplined approach to navigating today's market volatility for long-term gains.
Despite a spectacular year for stocks, concerns about high valuations necessitate cautious investment strategies amid market volatility.
A new earnings season is beginning that could positively impact stocks, emphasizing the importance of historical trends in earnings expectations.
Risk management is essential for investors, requiring a balanced approach to potential gains and losses across diverse asset classes.
Deep dives
Record Returns in the Market
The current year-to-date return of the S&P 500 is reported to be the largest since the late 1990s, signifying an exceptional period for stock investors. This remarkable growth suggests that almost any investment has yielded positive returns over recent years. Despite this success, concerns are raised about the relative valuation of stocks, indicating that they are expensive. Investors are advised to remain cautious as the market has experienced substantial volatility, even amidst rising stock prices.
Earnings Season and Market Trends
A new earnings season is commencing, beginning with major firms like JP Morgan and Wells Fargo, signaling a critical time for investors. Historically, earnings seasons have led to market upticks between 2% and 4%, as companies tend to exceed lowered profit expectations. The podcast discusses how lower earnings forecasts can create higher beat rates for companies, positively impacting stock prices. Analysts highlight that stock buybacks will also contribute positively to market performance during this period.
Navigating Pre-Election Market Uncertainty
The conversation touches upon the traditional market behavior of de-risking before elections, though this time may differ due to prior sell-offs. Historical patterns indicate that market corrections often precede election cycles as investors seek to mitigate risk. This year, however, with significant corrections already occurring in the summer, there may be less need for further de-risking. The discussion highlights that upcoming election results could influence market sentiment and create further volatility in the lead-up to the election.
Valuation Concerns Amid Strong Market Performance
The podcast addresses concerns regarding stock valuations, pointing out that forward price-to-earnings ratios are elevated compared to historical norms. Analysts emphasize the challenge in justifying current earnings expectations without consistent economic growth of 5% to 6%. The past two years' phenomenal growth has skewed investor expectations, leading to potential disappointment as returns normalize to more typical growth rates of 6% to 7%. There is a consensus that price and growth expectations need to be reassessed in light of current economic realities.
Technical Analysis for Decision-Making
Technical analysis is discussed as a crucial element for guiding investment decisions amidst fluctuating market conditions. The analysis indicated bullish signals, including breakouts above previous highs that could suggest further upward movement in stock prices. However, caution is advised as market momentum and relative strength have shown negative divergence, potentially indicating underlying risks. The importance of monitoring key indicators and maintaining flexibility in investment strategies is stressed, especially in the unpredictable landscape of financial markets.
Understanding Risk in Investment Strategy
The podcast highlights the intrinsic nature of risk management in an investor's strategy, emphasizing that risk is often misunderstood. It defines risk not only as volatility but also as the probability of incurring losses, encouraging investors to balance potential gains with the possibility of significant losses. The conversation underlines the need for a diversified approach that encompasses different asset classes to mitigate risk effectively. Furthermore, it advocates for setting achievable investment goals and holding oneself accountable to those targets while remaining adaptable to market changes.
In 2024 so far, stocks have had one of the best years in decades. And that's on top of a great year in 2023.
Bulls are obviously cheering this, but how long can the party continue?
Stocks are richly priced here.
And if earnings don't start growing aggressively, at some point, prices will have to correct, warns portfolio manager Lance Roberts.
That said, a new buy signal just got triggered this week (invalidating last week's sell signal).
So investors need to determine how much risk they want to take to pursue upside from here vs the growing risks of overvaluation.
Lance and I discuss this, as well as this week's new inflation data, bonds and the wisdom of Howard Marks in this week's Market Recap.
WORRIED ABOUT THE MARKET? SCHEDULE YOUR FREE PORTFOLIO REVIEW with Thoughtful Money's endorsed financial advisors at https://www.thoughtfulmoney.com
#bullmarket #inflation #technicalanalysis
Get the Snipd podcast app
Unlock the knowledge in podcasts with the podcast player of the future.
AI-powered podcast player
Listen to all your favourite podcasts with AI-powered features
Discover highlights
Listen to the best highlights from the podcasts you love and dive into the full episode
Save any moment
Hear something you like? Tap your headphones to save it with AI-generated key takeaways
Share & Export
Send highlights to Twitter, WhatsApp or export them to Notion, Readwise & more
AI-powered podcast player
Listen to all your favourite podcasts with AI-powered features
Discover highlights
Listen to the best highlights from the podcasts you love and dive into the full episode