Skip to main content

Sound Advice: November 1, 2023

Are Stocks on Sale?

If history provides meaningful clues to help answer this question, the answer is probably yes.  Why?  For several reasons.

Although some folks will disagree, the reality is that the nation’s economy is in reasonably good shape.  Yes, there certainly was a period during the pandemic when inflation soared to the low double digits, but that time has passed.  The latest numbers suggest that the current inflation rate is between 3.5% and 4.0%, a range that would not be described as astronomical.

For a time, gasoline prices took off, but they’ve eased from above $5 a gallon to less than $4 a gallon in most places.  However one views the situation, the periodic gains in the cost of living are moving in the right direction.

So what’s the problem?  It’s interest rates, which the Federal Reserve has increased at an extraordinarily rapid pace to get inflation under control.  Judging by recent comments by the Central Bank, it appears that we are approaching a peak level, which may well be followed by an easing.

That, however, is not an immediate prospect, but the stock market tends to look ahead and respond accordingly.  When rates rise, market prices are usually weak.  When rates fall, market prices strength.

Even so, we are still dealing with serious geopolitical issues that more than muddy the waters.  The war in Ukraine is now moving through the latter part of Year Two.   Add the distressing developments in Israel and there’s plenty of bad news to rattle investors, which is why the impact of improving U.S. business prospects may be more than offset by troubled investor psychology.

In the short term, changes in investor psychology always have a more important influence on the stock market than the progress of individual companies or the economy as a whole.  But, both can cause wide swings in short periods of time.

Another thing to keep in mind is the seasonal pattern of the stock market.  Since 1950, more than two-thirds of annual gains have taken place during the first and fourth calendar quarters of the year.  There’s no guarantee that near-term results will continue that pattern, but in the wake of a weak September quarter it would come as no surprise if stocks started to regain upward momentum.

N. Russell Wayne, CFP

Any questions?  Please contact me at nrwayne@soundasset.com

Comments

Post a Comment

Popular posts from this blog

Sound Advice: September 21, 2022

The Professional Approach To Stock Selection There are various approaches to stock selection, but the two that predominate are fundamental analysis and technical analysis.  Fundamental analysis is a numbers-based method that evaluates key factors such as income and financial health, including the past, present, and future.  Technical analysis emphasizes movements and formations of stock prices. Fundamental analysis is based on factors that over time have proved to have a meaningful impact on stock price movements.  The optimal picture of corporate profitability is steady growth, both in the past and, prospectively, in the coming years.  Steady growth is rewarded by higher valuations of underlying earning power than those accorded companies with erratic progress. When professionals screen (filter) the data of the broad universe of stocks, they look for companies that move ahead every year, regardless of the prevailing economic conditions.  Although high pas...
Post a Comment
Read more

Sound Advice: July 26, 2023

Is Day Trading a Good Idea? Day trading can be both exciting and potentially profitable, but it also comes with significant risks and challenges. Whether it's a good idea depends on several factors, including your financial situation, risk tolerance, time commitment, and knowledge of the markets. Here are some considerations to keep in mind: Risk and volatility: Day trading involves buying and selling securities within a short time frame, often within the same day. This exposes you to the inherent volatility and risks of the market. Prices can fluctuate rapidly, and unexpected events can have a significant impact on stock prices, making it challenging to consistently make profits. Time commitment: Day trading requires a substantial time commitment. It involves closely monitoring market movements, conducting research, and executing trades. It can be stressful and demanding, as you need to be actively engaged in the market during t...
Post a Comment
Read more

Sound Advice: May 31, 2023

High Yields, Yes!  But There Are Risks Now that failure to get much done in Washington seems to be the bottom line for lots of talk, but little action, it’s hard not to wonder whether we’re missing something.  Yes, the Federal Reserve Board has aggressively raised interest rates in the hope of putting a damper on excessively high inflation, but one would think that there might be some good news as a result of these efforts. The hoped-for result is that inflation is indeed moderating.  Also of importance, though, is the sharp improvement in interest rates on fixed-income investments, usually a.k.a. bonds.  For much of the past decade or more, interest rates have languished at or near historical lows, which created considerable shortfalls for folks living on fixed incomes. Thanks to the Fed’s hikes, the returns on bonds and the like are beginning to be of interest.  But . . . and that’s a big but . . . there are risks involved. For short-term investing at ...
Post a Comment
Read more