Föhrenbergkreis Finanzwirtschaft

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Posts Tagged ‘Stocks’

Shares Are Wildly Overpriced. But Bonds May Be Even Worse

Posted by hkarner - 14. Januar 2018

Date: 12-01-2018
Source: The Wall Street Journal

Stocks lose their appeal as yields rise; today’s high valuations suggest lower returns ahead

Bond yields are on the rise again, and it’s making shareholders jittery. They are right to worry, as low yields are the main support for historically high stock valuations, but bonds aren’t creating serious trouble for the equity market yet.

Bonds matter to shareholders in many ways, with the most obvious being that they are the main alternative investment, along with cash. Shares are very expensive compared with their own history on almost every measure, but compared with locking in a paltry 2.5% for 10 years they don’t look so bad. To put some numbers on it, analyst estimates of forward-looking operating earnings are 5.4% of the price of the S&P 500, and forecast to keep rising in future years. Why settle for 2.5% from bonds when the earnings yield on stocks is double that?

The question comes down to one of reward for risk. Earnings are uncertain, so shareholders should get an extra reward for the risk of holding stocks compared with the certainty offered by Treasurys. That reward, known as the equity risk premium, shrinks if bond yields rise faster than the outlook for profit.

Working out this equity risk premium is contentious, to put it mildly. The principle is to estimate how much companies will generate for shareholders in future and compare it with bonds, but there is little agreement on how to do that. We care about the future, and we want something long term, so typically the focus is on estimates for operating earnings, stripping out one-offs. Unfortunately, management know this, and artificially boost operating earnings via one-off losses—not just once, but year after year. Overall earnings also overstate how much investors benefit, as much corporate investment is wasted. Den Rest des Beitrags lesen »


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How to Survive a Stock Market Bubble

Posted by hkarner - 10. Januar 2018

Date: 09-01-2018
Source: The Wall Street Journal

There are reasons to keep buying tech stocks, but do so with an eye on the exit
Not a dot-com repeat…yet

If a new bubble is developing in the stock markets, it is still very early.

Let me be clear: stocks, even go-go technology stocks, aren’t in a bubble. But there are increasing signs of euphoria, and it is plausible that a true blowout end to the bull market could be on the way soon. If a bubble is finally developing, investors will have a chance to make a ton of cash, to lose it again, or to miss out entirely. How best to play a euphoric market?

Start with the signs of frothy behavior. For years stocks have been going up without wild exuberance. Investors have felt compelled to buy shares because bond yields are so low, but this deliberate engineering of a bull market by the central banks didn’t engender excitement. The narrative of the market was one of caution. Investors for a long time bought the safest stocks they could, pressed chief executives to return cash rather than boost capital spending, avoided big glitzy takeovers and worried—wow how they worried!—about a repeat of the 2008 financial crisis.

Ten years on from Lehman Brothers’ failure that worry is finally dissipating. The market’s story line has changed to one of disruptive, low-inflation growth, fueled by easy money. Den Rest des Beitrags lesen »

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Four Things Sure to Happen in Markets During 2018

Posted by hkarner - 8. Januar 2018

Date: 06-01-2018
Source: The Wall Street Journal By Jason Zweig

You can’t be certain about anything in this market, except this

Forget Dow 25000. Every year is full of surprises, but there are a few things every investor should expect to see happen in 2018.

With companies moving less in lockstep, professional investors will declare this a “stock pickers’ market.” Asset managers will proclaim that the impending rise in interest rates means you need bond funds that can hold any kind of debt. After years of smooth increases, even a 5% decline will set off cries of panic. And reported returns will shoot upward as the financial crisis of 2008 is jettisoned from 10-year track records. A look at these trends now should help keep you from overreacting — or acting at all — when they transpire.

Correlations, or the extent to which companies move up or down together, are at their lowest in more than 25 years, according to T. Rowe Price.

Whenever stocks rise and fall independently like this, portfolio managers say beating the market becomes easier. Den Rest des Beitrags lesen »

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Global Stock Surge Mints More Than $9 Trillion in Market Value

Posted by hkarner - 3. Januar 2018

Date: 02-01-2018
Source: The Wall Street Journal

Almost every major yardstick for global stock prices ended the year with double-digit percentage gains

The Federal Reserve aims to raise interest rates another three times in 2018 and the European Central Bank plans to pare back the pace of its monthly purchases of government and other bonds starting in January.

Soaring stock prices across the globe added more than $9 trillion in market value to equity markets in 2017, the biggest one-year swell since the financial crisis.

Almost every major yardstick for global stock prices ended the year with double-digit percentage gains as improving economic growth and sturdy corporate profits coaxed investors to buy. At the same time, central bankers across the globe mostly kept their economic stimulus measures in place.

These efforts have pinned down borrowing rates and diminished the payout available for relatively safe government bonds, encouraging investors to own stocks even as equity valuations tick higher. Den Rest des Beitrags lesen »

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The Growing Peril of Index Funds: Too Much Tech

Posted by hkarner - 31. Dezember 2017

Date: 29-12-2017
Source: The Wall Street Journal

Surging sector has driven gains in major U.S., Asia indexes; Apple, Amazon, Facebook lead weighting of tech shares in S&P 500

The tech-heavy Nasdaq Composite Index is up 28.9% so far this year, and the S&P 500 index has climbed 19.8%.

Being passive can leave you with too much of a good thing.

Investors who loaded up on U.S. and Asian stock-index funds might be surprised to learn just what they own now: technology stocks—a lot of them.

Led by Apple Inc., Facebook Inc. and their peers, the weighing of technology stocks in the S&P 500 index has climbed to 23.8% as of Dec. 26, from 20.8% at the end of last year, according to S&P Dow Jones Indices. Den Rest des Beitrags lesen »

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Pulling the punch: financial markets

Posted by hkarner - 29. Dezember 2017

Date: 28-12-2017
Source: The Economist

Economics outweighed politics as far as the financial markets were concerned in 2017. Investors may have taken occasional fright at President Donald Trump’s bellicose tweets, the slow progress of Brexit or populism in Europe. But their attention quickly switched back to the main theme of the year: economic growth forecasts were upgraded and inflation remained low.

As a result the two potential stockmarket bogeymen—a recession and rapidly rising interest rates—were kept at bay. Subdued inflation also meant that government bond markets defied the bears for yet another year with yields staying at low historical levels.

But politics could bite back in 2018 if tensions rise further between America and North Korea, or between Saudi Arabia and Iran. And it is far from clear how markets will cope as central banks continue to withdraw their monetary stimulus. But who wants to spend the Christmas holidays thinking about the punchbowl being snatched away?

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Investors Are the Most Bearish Since Great Financial Crisis

Posted by hkarner - 17. Dezember 2017

Date: 16-12-2017
Source: The Wall Street Journal

Nearly seven in 10 investors say stocks are overvalued

For years, the historic run higher for U.S. stocks has been characterized as a “hated” rally, one that has consistently vexed investors with rising prices in the face of widespread skepticism.

If anything, repeated record highs in 2017 have only made money managers more dour.

Big investors are heading into 2018 with the most bearish perspective on stocks since the great financial crisis, according to Boston Consulting Group’s annual investor survey.

Fully 46% of investors were pessimistic about equity markets for the next year, up from 32% a year ago and 19% in 2015; more than one-third were bearish about stocks over three years, more than double last year.

As global equity benchmarks have rallied, more investors see the market as richly valued. Fully 68% of respondents said the equity market is “overvalued,” more than double the 29% of respondents who thought as much last year.

Nearly four-fifths of self-described bears cited “overvaluation” as the reason for their market pessimism, the survey found.

As bears perk up, expected long-term returns are falling. The average expectation for total equity return, including dividends, over three years was 5.5%, the same as last year and tied for the lowest return expectation since the survey was initiated in 2009. Of course, diminished expectations haven’t slowed down the galloping pace of stock gains yet.

Investor concerns stretch into the wider economy. Nearly 80% of respondents said that they expect an economic recession within three years and 53% said that they expect a recession within two years. Den Rest des Beitrags lesen »

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Wall Street’s 2017 Market Predictions: Pathetically Wrong

Posted by hkarner - 25. November 2017

Date: 24-11-2017
Source: The Wall Street Journal

Forecasting is difficult, but this year showed exactly how pointless it can be: Markets performed opposite of virtually all predictions

We all like to remember our successes and forget our failures, and finance is no different. As investors’ inboxes once again become clogged with annual outlooks from Wall Street’s scribblers, there is little admission of the nearly universal failure to predict what happened this year—even though the things the analysts missed are much more interesting than their forecasts.

There are two big lessons to learn from the mistakes of the year-end crystal-ball gazing. The first is that when everyone agrees that prices can only go in one direction, it is dangerous. The second is more nuanced: We really know an awful lot less about how the economy works than we thought. Den Rest des Beitrags lesen »

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Three Reasons To Stay Bullish on Tech

Posted by hkarner - 22. November 2017

Date: 21-11-2017
Source: The Wall Street Journal

Tech giants like Apple Inc. have helped drive U.S. stock gains this year.

What tech bubble?

The surge in technology stocks has been at the heart of concerns about frothy market valuations this year. The S&P 500’s information technology sector has gained 37% in 2017, more than double the gain of the broader index.  That’s been driven by tech giants like Facebook Inc., Google parent Alphabet Inc. and Apple Inc. The U.S. stock market’s record run this year–the S&P 500 and Dow Jones Industrial Average have each set more than 50 records–has drawn comparisons to the 2000 dot-com bubble and raised concerns about a market correction ahead.

Credit Suisse isn’t worried. In a research note Monday, the bank laid out its case for staying bullish on technology stocks. Here are three of the reasons they gave:

1. The sector isn’t that overvalued.

Credit Suisse argues that valuations for tech stocks aren’t actually all that high. The sector has a forward price-to-earnings ratio of 21, compared to a ratio of 18 for the broader S&P 500. That 3-point premium for tech compares to a 20-point premium for the sector in 1999, at the height of the dot-com bubble.  Credit Suisse includes traditional tech companies companies like Microsoft and internet retailers like Amazon.com Inc. in its data.

Forward price-to-earnings ratio

2. It’s not as risky as it used to be.

The bank notes that a measure of volatility for tech stocks has fallen sharply over the past two decades, while most other sectors have seen a pickup in volatility. Meanwhile, tech companies have built up huge reserves of cash and carry hardly any debt, making financial stress unlikely.

Cash as a percentage of  assets

3. Growth is strong.

Perhaps the most compelling reason for staying bullish on tech is the sector’s earnings and revenue potential. Strong tech earnings have already helped drive up the broader stock market this year. Credit Suisse says a measure of expected revenue growth for tech is the strongest of any sector, while forward earnings growth for tech is also outpacing the broader index.

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October Was a Month of Records in the Stock Market

Posted by hkarner - 2. November 2017

Date: 01-11-2017
Source: The Wall Street Journal

The stock market kept notching new highs in October.

The Nasdaq Composite index had 12 record closes this month, the most in a month since December 2000 and the most ever for an October. The S&P 500 racked up  11 record closes, the most in a month in nearly three years and the most ever for an October, according to The Wall Street Journal’s Market Data Group.

The year’s 10th month is known as one of the more volatile, with big crashes having occurred in 1929, 1987, and 2008. But October turned out to be a smooth ride this year. The S&P 500 climbed 2.2%, the Nasdaq rose 3.6%, and the Dow industrials jumped 4.3%.

U.S. stocks have steadily marched higher for much of the year. The Dow has risen for seven consecutive months, the longest such streak in five years. The S&P is similarly up for seven months, the longest streak since 2013. The Nasdaq has now hit 62 record closes this year, matching its 1980 record for highs in a year.

And much like the rest of year, tech stocks led the way in October. The S&P 500 tech sector was up 7.7%, including a 2.9% surge on Friday. Its monthly performance was nearly double that of the next best sector, utilities, which was up 3.9%. Year to date, the tech sector is up 36%.

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