By Barbara Kollmeyer, MarketWatch
An earlier version of this report incorrectly stated that Microsoft was in line Thursday to become the first company to achieve a $1 trillion stock-market valuation. Apple and Amazon have previously achieved the feat, though both companies’ market capitalization are now below that level.
A year from now, some investors may be kicking themselves for not buying into this relentless bull market.
They might look back and say, ‘Wow, now that was a great time to buy.’
Or not, because all this caution that seems to keep dogging the market’s attempt to push it higher — such as the Nasdaq and S&P giving up a foray into record territory on Wednesday—may not be for nothing.
Onto our call of the day from BMO Wealth Management’s chief investment strategist Yung-Yu Ma, who cautions that an over-hyped fear surrounding stock markets may be holding investors back.
“The biggest thing we think hindering investors at this point is probably the belief among participants . . . that the U.S. equity market is overvalued. We think it’s reasonably fairly valued,” Ma told MarketWatch in an interview earlier this week. That’s as he says BMO believes U.S. and emerging-market equities remain top options for investors right now.
“That idea, that a lot of people are counseling a lot of people away from stocks because of valuations, is quite misguided,” said Ma, who notes that U.S. and emerging-market equities are the firm’s investment of choice right now.
He bases his view chiefly on a comparison of S&P 500 earnings yield, a popular metric that gauges expected stock returns, versus the yield on the 10-year Treasury note. Traditionally, how this works is if the S&P 500 is yielding is less than that of safer-haven bonds, stocks might look overvalued. In the reverse case, stocks might look like a better value.
“Prior to the financial crisis, it was typically the case that these yields tracked each other rather closely, and the trade-off was the safety of Treasury notes versus the growth exposure of equities,” said Ma. “Over the past several years, however, the earnings yield available in the equity market relative to the yields in the bond markets (or, relative to interest rates more generally) has pointed to a favorable environment for equities.“
Here’s his chart laying out that case.
What else is wrong with investors lately? They still can’t seem to get away from focusing too much on the short term. “In December, for example, there was probably a lot of concern among clients and investors that we should be pulling back from equities and taking a meaningful amount of risk off the table, positioning portfolios in a less risky manner,” said Ma.
No doubt a big earnings rush this week is going to make a focus on the future tough for some. Amazon and Ford are headed our way later Thursday, while investors chew over results from other big names such as Tesla, Microsoft and Facebook and some pretty downbeat earnings from 3M.
The Dow /zigman2/quotes/210598065/realtime DJIA +0.34% is down sharply at the start of trading, weighed by losses for af ter blue-chip 3M ripped up guidance. The S&P 500 /zigman2/quotes/210599714/realtime SPX +0.14% is off slightly and the Nasdaq /zigman2/quotes/210598365/realtime COMP +0.08% is headed the other direction. Check out Market Snapshot for more.
Europe stocks /zigman2/quotes/210599654/delayed XX:SXXP -0.07% are down amid a glut of corporate news. Asian equities closed mixed, with Korea stocks /zigman2/quotes/210598069/delayed KR:180721 +1.29% dipping after data showed the biggest growth slowdown since the financial crisis.
Our chart of the day from Wolf Richter at the Wolf Street takes issue with the value of electric-car maker Tesla (see below for latest results).