Welcome to CrushTheStreet.com’s Weekly Market Wrap-Up!
Our top story of the week is the incredible surge in the domestic equities market which has caught all but the most ardent cheerleaders by surprise. With the benchmark S&P 500 eclipsing the psychological trading barrier of 1,900 points, there’s no denying that the bears have been left wanting.
Compounding matters further is the fact that using traditional investment methodologies, the equities market is considered under-valued. For example, many fund managers gauge the earnings yield of the broader indices against the prevailing rate of 10-year Treasuries to determine risk assessment.
In theory, investors are looking for a higher yield from the stock market to justify the added risk, which runs contrary to the virtually risk-free yield of Treasury bills. With a current estimated rate of 5.22% in the S&P 500, equities on paper provide more than double the passive returns of Treasuries, indicative of further room to grow in the stock market.
The Dividend Yield
But before you go all in, you must realize that this is only half the story. The other side of the fence is the dividend yield, or the ratio that shows how much a company pays out in dividends each year relative to its share price. The worrying divergence is that despite dividends on a real basis moving steadily higher since the 19th century, the yield has settled in a range that is uncomfortably close to all-time lows, a trend that began in the late nineties.
What that demonstrates is a declining degree of confidence within corporate America and unless investors are rewarded with a cash-flow equitable to the uncertainties inherent in the financial markets, many will find little reason to continue pouring in capital, particularly if the bond market reverses course.
Finally, the mainstream media owes it to their audience to offer at least the pretense of journalistic integrity. The last five years have not been a bull market…its been a recovery market! When you have two crashes inside a decade, the gains that have been made have mostly served to make the investment community equitable. The real bull market, if we are to have one, will be demonstrated by what happens now. Keep in mind that year-to-date, the S&P is up 4.8% with nearly half-a-year in the history books : this implies an annual return of about 10%…a positive result, to be sure, but is half the velocity of last year’s run.
So far, the real numbers haven’t dampened Wall Street’s enthusiasm, with the S&P closing at 1920 points, while the Dow Jones closed inside two points of hitting the 16,700 threshold. The NASDAQ added nearly 23 to move it half-a-percent higher over the prior session.
Precious Metals & Bitcoin
The metals complex took a dive this week due to the risk-on rotation of the broader markets, with gold closing at $1,254 and silver treading water at $19.03. Palladium had a slow session, finishing off at $834. On the digital front, bitcoin charged upward early in the week, settling into a range just shy of the $580 mark.
And that will do it for this edition. Thanks for watching and we’ll see you next week!