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The Best of What They Said and I Read Week Ending 1/7/18

Short excerpts from articles I found interesting.

I may not agree with the author and the following material is not intended as investment advice.

Barron’s – January 6, 2018 – Dow 25,000:  How High Can It Go? – by Ben Levisohn

“The Dow Jones Industrial Average rose 576.65 points, or 2.3%, to 25,295.87 last week, a new all-time high and its first time above 25,000. The Nasdaq Composite climbed 3.4%, to 7136.56, to a new record high and its first time above 7000. The Standard & Poor’s 500 index also hit an all-time high, gaining 2.6%, to 2743.15. It all made for an amazing beginning to the year. “I get the sense that people are starting to worry they’re missing out on something,” Greg Woodard, portfolio strategist at Manning & Napier.”

“…And with all the recent upside, it’s easy to forget just what a selloff can look like. The S&P 500 has now gone 385 trading days without falling 5% or more from its 52-week high, says Jason Goepfert, president of Sundial Capital Research—the longest such streak on record. In fact, on only three occasions—in 1965, 1994, and 1996—has the S&P 500 gone 370 days without such a drop. When those streaks ended, the market dropped an average of 8.7% over the next 30 to 40 days.”

U.S. Global Investors – January 5, 2018 – Investor Alert – by Frank Holmes

“…Then there’s the flattening yield curve. The yield curve is said to “flatten” when the difference between the two-year Treasury yield and 10-year Treasury yield starts to tighten. As of today, that spread drew up to around 0.496 percentage points, its flattest level since October 2007. This measure is worth watching because it’s often seen as one of the most reliable “canary in the coal mine” predictors of recession. The past seven U.S. recessions were directly preceded by an inverted yield curve—that is, when short-term yields rose above long-term yields.”

“…Charles Schwab’s client account cash balances as a percentage of total assets are at record low levels, levels below the lows prior to the Technology crash in 2000. This, combined with the longest bull market in history, nine years running, is seemingly starting to worry some market participants.”

The Wall Street Journal – January 5, 2018 – Four Things Sure to Happen in Markets In 2018  – by Jason Zweig

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

“…The S&P 500, including dividends, has gone up for 14 months in a row, the longest consecutive run since 1928, according to Bank of America Merrill Lynch. And stocks’ recent movements up and down have been smoother than in most periods since 1885, according to William Schwert, a finance professor at the University of Rochester.”

“…Consider the epic crash of Oct. 28, 1929. That day, the Dow Jones Industrial Average fell 13%, or 12.75 times its standard deviation, a measure of how much its returns had recently been varying from their typical level.  Nowadays, says Prof. Le Bris, the market has been so tranquil that it would take only a 5% one-day drop in the Dow to match the same extreme measure of risk from that horrific day in 1929.  So you should brace yourself. In this environment, even slight declines are apt to set off talk of Armageddon, and you will need to focus harder than ever on long-term returns to keep short-term losses from rattling you.”

“And long-term returns are likely to be distorted this year. In September and October 2008, the depths of the financial crisis, U.S. stocks fell 9.1% and 16.9%, respectively. This fall, those apocalyptic months will finally be more than 10 years behind us — and, as a result, the long-term return on equities will go up like a rocket.  In fact, the S&P 500’s 10-year cumulative return would leap from 82.1% at the end of 2017 to 198.3% at the end of this coming November — even if stocks go absolutely nowhere for the first 11 months of 2018, says Howard Silverblatt, senior index analyst at S&P Dow Jones Indices.  That would nearly double the average 10-year gain to 11.5% annually from 6.2%, without even counting dividends.  Stocks will then look much more attractive in the rear-view mirror, even though nothing will have changed but the calendar. Don’t believe the hype.”


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