The S&P 500 Index closed at another record high on Friday. While such records are usually cause for celebration, the outlook we see isn’t all roses.
Our followers know that we take a comprehensive approach to managing portfolios as well as managing wealth. So we thought we’d share a snapshot of some of the stock market indicators we follow that lead us to our cautiously optimistic views.
Fundamentally, stocks aren’t cheap. While we’re not quite partying like it’s 1999, we do have elevated stock prices that aren’t supported by underlying earnings growth. From a technical perspective, momentum is still in bullish territory, but we have seen some weakening recently.
Investor sentiment has also been trending in the wrong direction, as overly optimistic signals historically produce subpar returns. And we are now observing overly bullish sentiment in stocks. Lastly, the economic environment is a bit suspect, with recent indications of slowing growth. The silver lining here is a delayed start to Fed interest rate hikes.
We don’t advocate getting defensive just yet, as we remain disciplined in our process-driven approach. While we’ve highlighted some currents risks we see, we remain overweight stocks until our research dictates otherwise. But we thought this post would provide a more balanced view of the recent stock market highs.
James Callahan, CFA is Managing Director of Investments and Chief Investment Officer of Janiczek® Wealth Management.
Jim brings 20 years investment experience to Janiczek®’s disciplined Evidence Based Investing (EBI) and Strength Based Wealth Management™ (SBWM) platform. He has a Bachelor’s degree in Economics from Santa Clara University, an MBA from the University of Michigan, and is a CFA charterholder. He is a Partner of the firm and a member of its executive Leadership Team.