Market Digest – Week Ending 2/12
A Friday rally partially salvaged an ugly week, but stocks still lost ground. The S&P 500 finished down 0.8%, but international stocks were off 2.8% and the global stock market entered official bear market territory (down more than 20% from the high last May). Reminiscent of periods of stress in 2011 and 2014, weaker nations in Europe began to see rates rise even as German bond yields fell. Gold and Treasuries rose.
S&P 500: 1,865 (-0.8%)
FTSE All-World ex-US: (-2.8%)
US 10 Year Treasury Yield: 1.75% (-0.09%)
Gold: $1,237 (+5.5%)
USD/EUR: $1.126 (+0.9%)
• Monday – Yelp announced a Q4 loss but higher revenue. Its CFO stepped down.
• Monday – US Bank stocks were hit hard on declining expectations for rate increases.
• Monday – The Labor Department proposed a rule that would require sellers of variable annuities to adhere to a fiduciary standard, which could radically change the industry.
• Wednesday – Fed Chairwoman Yellen said she does not expect to have to cut rates and does expect to continue the plan to slowly increase them. She acknowledged that market or economic weakness could delay or scuttle planned hikes.
• Wednesday – Asahi offered $2.9 billion to Anheuser-Busch InBev for Peroni and Grolsch.
• Thursday – The number of Americans filing for unemployment fell more than expected, suggesting the labor market remains strong amid stock market weakness.
• Friday – Oil prices rose 12% on hopes of production cuts.
There are plenty of reasons to be scared of stocks, but there are always plenty of reasons to be scared of stocks. In our view, one of the main concerns has been high valuations, especially in the US. The S&P 500 began the year trading at 23 times trailing earnings. Now it is at 21. That is still higher than historical averages, but considering interest rates are hovering around record lows it isn’t extreme – lower rates make stocks more attractive by comparison.
We’d rather buy at 21 times earnings than 23. Meanwhile, the dividend yield has crept up to 2.4%, which isn’t exciting, but is higher than it has been in a long time. If there is a good part about declining stock prices it is that it makes them more attractive when looking forward.
There are also always plenty of reasons to be bullish on stocks. Our favorite – they go up more than they go down. It will be an interesting year, but it is almost always an interesting year.