Spring 2015: Quarterly Update

Reginald A.T. Armstrong • The Armstrong Report


2015 started out with an apparent return of volatility. The S&P 500 recorded a 3% loss in January, followed by a rapid February rebound of 5.74%. Then on March 2nd, the Nasdaq Index hit 5000 for the first time since 2000.

THE ECONOMY

The economy on many fronts continues to strengthen. Some leading measures, however, are forecasting weakness ahead and bear watching. Certainly corporate earnings appear they will be weak in the first quarter.

THE MARKETS

The US stock market continues to appear overvalued here. Not to beat a dead horse, but based on measures that are considered reliable in forecasting future 10 year returns, the US stock market is anywhere from the most expensive in history to the third most expensive, behind the 2000 tech bubble and the 1929 peak. Now we don't know how this will resolve itself. For instance, a few years of mediocre returns combined with ongoing strong corporate profit growth would bring the valuation measures back to a more reasonable range. But here is what has happened in the US stock market as measured by the S&P Composite in the five most overvalued markets: 1) 2000 peak to trough drop of 49.1%, 2) 1929 peak to trough drop of 86.1%, 3) 2007 peak to trough drop of 56.8%, 4) 1937 peak to trough drop of 54.5%, and 5) 1969 peak to trough drop of 36.1%. Not a pretty picture. Today's valuation places us as the second most overvalued, between the 2000 peak and the 1929 peak.

So what to do? Speak with your wealth manager to identify that you don't have more stock exposure than with which you are comfortable and/or need for your overall strategy.

THE FIRM

The only major announcement, besides our firm getting some positive press in the local Morning News, is that beginning with this edition of our newsletter; we are introducing a new section in which we will feature a small business owned by one of our clients. Look for it each quarter, consider patronizing those businesses, and if you own a business and would like to be featured, please contact us.

As always, thank you for your continued trust.

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