While major market indexes rose sharply on Thursday, it wasn’t an “all-clear” for investors as telecom shares and consumer staple stocks fell, while healthcare and technology shares rose nearly 2%. Strong earnings by Caterpillar, which also raised its full-year outlook, lifted investor’s spirits causing the Dow to gain as much as 300 points intra-day before closing up about 200. Markets did come under some pressure in the late afternoon after rumors circulated (which were later proven to be true) that a doctor in New York City was showing signs of having contracted the Ebola virus. Given the volatile nature of the market, many are asking themselves what they should do in this environment – in our view, and as we have frequently shared (watch our latest CNBC interview here: http://video.cnbc.com/gallery/?video=3000323515) taking a patient and long-term view to investments should alleviate many of the short-term concerns the fear filled news-headlines are bringing forth.
So far third quarter earnings have been strong. While there have been some notable misses by the likes of McDonalds and Amazon, there have been more earnings beats by the likes of Nike, Microsoft and Caterpillar. So far, with just over 2/3rd of S&P constituents reporting, 68% of the companies have beaten EPS estimates. Additionally, economic news continues to be robust, with unemployment falling, inflation remaining benign and overall activity continuing to grow. However, it is clear that overall investor sentiment is best described as nervous, as fears over a spread of the Ebola virus, a worsening of conditions in Europe and the ongoing geopolitical turmoil between Russia and the West are all dampening investors mood. As such, we believe that a patient, longer-term view is most appropriate, meaning that investors should focus on the basics – corporate earnings and overall economic growth. As of Thursday’s market close, the trailing P/E ratio of the S&P 500 is 17.80, while the trailing P/E ratio of the Dow Jones Industrial Average sits at 15.44. Looking 12 months ahead, based on analysts’ expectations, the spread does narrow, to 15.75 forward P/E for the S&P, and a 14.25 forward P/E for the DJIA. Price to Earnings ratios are just one of many metrics used to judge the value of a stock and the broader market. However, given this disparity, and accounting for dividend payouts, it is fairly evident that high-quality dividend paying stocks continue to offer investors a relatively attractive value, compared to other segments of the market.
Next Week’s Market Moving Events:
- Monday: Pending Home Sales, PMI Services and Dallas Fed Manufacturing. T-Mobile and Twitter report earnings.
- Tuesday: The 2 day FOMC meeting kicks off, Durable Goods Orders, Case-Shiller Home Prices, Consumer Confidence and the Richmond Fed Manufacturing Index are all reported. Aetna, AFLAC, Coach, DuPont, Express Scripts, and Pfizer all report.
- Wednesday: Mortgage Applications, FOMC Minutes release and the Chairwoman’s conference. Fiat-Chrysler, Ralph Lauren, and Southern Co report.
- Thursday: (First estimate) Third Quarter GDP, Jobless Claims, European economic sentiment and inflation outlook. Cigna, Conoco Philips, and Master Card report.
- Friday: European manufacturing and inflation data, US Personal Income and Spending, Consumer Sentiment and the Employment Cost Index are released. Chevron and Weyerhaeuser report.
Don’t miss our President, Oliver Pursche, on Fox Business Network next Tuesday when he joins Charles Payne for the six o’clock hour to discuss our year-end outlook and what we think will drive markets in 2015. And tune into Money Matters with Gary Goldberg this Saturday at 5:00 PM (following the Rutgers game) and Sunday at 2:00 PM on WOR 710 AM Radio to hear a great interview with Newt Gingrich, as well as our latest market and economic analysis. Visit our website www.ggfs.com for details.