If you’re paying attention to the financial media right now, it sounds like the stock market is overvalued, nothing is working and the bull market is running out of steam. But to make our money as informed investors, you and I need to take sensational headlines like these with a grain of salt. In today’s blog, I’ll examine what’s going on with the market right now, so you can decide for yourself if the bull market is actually coming to an end.
First things first, the stock market is not overvalued. There’s no bubble about to burst. The truth is that price-to-earnings ratios are actually declining. What’s that mean? Well, it means even though the stock market has followed earnings higher this year, its overall value still hasn’t appreciated as much as earnings themselves have risen. So, there’s still some room to run before we can consider today’s market overvalued.
To our second point, the folks at Bespoke right now are the ones who say nothing is working on Wall Street. This comes from a report they recently released showing they’re having a hard time finding a group of stocks representing the best place to invest right now.
But Bespoke groups stocks together based on criteria like market cap, analyst ratings, institutional ownership, dividend yield and more. Based on their research, these different buckets of stocks are all performing similarly. That’s why they say nothing has worked since the market hit an all-time high on August 7. Now, it’s true the S&P 500 is down 2% over the past three weeks, but all Bespoke is really saying is they can’t find a basket of stocks to fit their criteria.
Of course, the Wall Street Journal has also recently noted the S&P broke through its 50-day moving average three times in August. This implies the stock market’s power is fading. And when you read all these headlines together, it sure does sound like the bull market very well may be coming to an end.
But I have one answer for all these seeming issues, and that’s regular August seasonality.
August is when the market usually experiences a number of “air pockets” and “seasonal shenanigans” due simply to a lack of liquidity. In fact, last Wednesday marked the lowest trading volume day of the year. So, it’s really no surprise stocks are sloshing back and forth right now. What we need to remember, though, is money is not leaving the stock market. There are still buckets of stocks bucking the overall trend.
First, international ADR shares are clearly benefitting from persistent institutional buying pressure. Second, many up and coming stocks should benefit from quarter-end window dressing, as well as the 90-day realignment of smart Beta ETFs and equal-weight ETFs at the end of September.
Overall, the stock market remains the best game in town, and I expect an impressive launch when liquidity returns in the upcoming weeks. So, if you’re not fully invested right now, you want to be taking steps to get fully invested. Especially since one of the best buying opportunities is this week, ahead of the Labor Day holiday.
Americans love their three-day weekends and this positive mood tends to spread to Wall Street. The stock market often rallies heading into major holidays. So, I recommend you take a look at your favorite stocks in my Portfolio Grader tool right now and decide where you want to put your money today. And remember to always stay tuned to this blog where I’ll alert you of new opportunities as they emerge.