October 14, 2013 Leave a comment
Once we get past the current Washington Malfunctions we’ll have some market conditions to balance as we try to make money while protecting profits going into the New Year. As far as the current news driven volatility is concerned we have to rely on our stops to tell us what direction the market is headed. Here are some things to keep in mind going into 2014:
P/E on the S&P and Dow is 14.5-15 while small and mid-cap indices are priced at 19-20 times trailing earnings. (Fundamental Indices carry somewhat lower P/Es.) Based on current interest rates this seems fully valued but not speculative, although there is clearly increased speculation in several high profile momentum stocks, often a sign of late stage market activity.
Staying alert, we’ll want to listen closely to the Fed for sounds of tapering, and we’ll want to watch for more signs of slowing economic growth. If the Fed stays accommodative and world economies at least stop slowing we should be good to go into the New Year. More signs of slowing and/or less accommodative sounds from the Fed will create headwinds for stocks in general and probably lead to serious declines in momentum stocks that disappoint at earnings time.
As far as stock groups are concerned healthcare including biotech and select tech look attractive whatever happens to interest rates (within reason) or economies (within reason.) Higher interest rates will be hard on popular dividend stocks, and slowing economies will be hard on commodity and industrial stocks.