Daily Capital

Market Recap – S&P 500 Ends The Week At New All-Time High

Market Digest – Week Ending 5/15

Stocks posted modest gains in a choppy week. International Stocks are now outpacing US Stocks by 8% for the year, but trail by 10% when looking back 12 months. While not perfect, stocks have been fairly highly correlated with the Euro so far this year. The common currency rallied this week, as soft retail sales in the US, coupled with rising bond yields in Europe stoked demand. The Euro has now recovered almost two-thirds of the year to date decline from the low in March. Gold, which is priced in dollars, also rose.

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Weekly Returns:
S&P 500: 2,123 (+0.3%)
FTSE All-World ex-US: (+1.1%)
US 10 Year Treasury Yield: 2.14% (-0.01%)
Gold: $1,225 (+3.2%)
USD/EUR: $1.145 (+2.2%)

Major Events:
• Monday – Uber is looking to raise another $1-$2 billion at a valuation in the $50 billion range, which would make it the only VC funded startup other than Facebook to reach that level.
• Monday – Germany’s finance minister suggested the country may be open to a referendum on the Greek bailout, which could lead to an exit from the Eurozone.
• Tuesday – Secretary of State John Kerry met with Russian President Putin in an ulikely attempt to get Russia to end support for Syrian President Assad.
• Tuesday – MSCI said it will announce next month if it will add China A-Shares to its Emerging Markets indexes. If so, China will represent nearly 40% of the index.
• Wednesday – The US killed ISIS second in command in an airstrike, according to Iraq.
• Wednesday – The Vatican announced it would sign a treaty with the “state of Palestine”, drawing criticism from Israel.
• Friday – Boston Marathon bomber Dzhokhar Tsarnaev was sentenced to death.

Our take:

The S&P 500 is up just around 3% for the year, but finished the week at a new all-time high. This is a good accomplishment considering earnings actually fell in Q1. The combination has valuations in uncomfortable territory.

The Wall Street Journal published an interesting article today highlighting the increasingly popular CAPE ratio, which measures stock prices divided by average earnings over the last decade. It sits at 27. By this measure, stocks are more expensive than any post-war time except the final years of the dot.com bubble. The article also points out that if you sold out of stocks when the CAPE hit this level in the 90’s, you would have missed the final rally in 1998 and 1999. If you waited to buy again when the ratio returned to long term averages, you would be worse off than if you just rode it out. Of course you may have slept better.

Trying to time a peak is dangerous and we don’t recommend it. Even when you are right, you often end up wrong by the time you get back in. And it may even be harder in this market cycle because the alternatives also look expensive. It is one thing to sit out of the market in 5% bonds, and quite another to wait it out while earning only 1%.

We are deep in a bull market. Things are good. In our view, now is a good time to enjoy what the markets are giving, and stick with your long-term plan. It is not a good time to be greedy or overthink valuation ratios.

The content contained in this blog post is intended for general informational purposes only and is not meant to constitute legal, tax, accounting or investment advice. You should consult a qualified legal or tax professional regarding your specific situation. Keep in mind that investing involves risk. The value of your investment will fluctuate over time and you may gain or lose money.

Any reference to the advisory services refers to Personal Capital Advisors Corporation, a subsidiary of Personal Capital. Personal Capital Advisors Corporation is an investment adviser registered with the Securities and Exchange Commission (SEC). Registration does not imply a certain level of skill or training nor does it imply endorsement by the SEC.

Craig Birk, CFP®
Craig Birk leads the Personal Capital Advisors Investment Committee and serves as Chief Investment Officer. His focus is translating improvements in technology into better financial lives. Craig has been widely quoted in the Wall Street Journal, Bloomberg, CNN Money, the Washington Post and elsewhere. Prior to Personal Capital Advisors, he was a leader within the portfolio management team at Fisher Investments, helping assets under management grow from $1.5 billion to over $40 billion. Craig graduated from the University of California at San Diego and has earned the Certified Financial Planner® designation.

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