The 6th Anniversary of 676

On March 9th, 2009, the S&P 500 made an intra-day and 20 year low at 676.53. Millions of Americans drew a straight line from the mid-September 2008 failure of Lehman Brothers through that March low and projected that the S&P 500 would be zero by June. Armed with that projection, average investors liquidated hundreds of billions of dollars in stock investments, never to return. Those investors will never be able to retire. The investors who hung tough at the worst moments or, even better ADDED to their stocks investments during that frightening month, enjoyed returns of 225% over the next 6 years (better than a triple.) The current bull market is the 4th longest in stock market history. Is it reasonable that stocks will pull back 10% or even 20% this year, or can the current rally continue?

So many crises over the last 100 years, and yet the one investing constant is that stock market prices are driven primarily by revenue and earnings growth, interest rates and relative valuation. At present, annualized revenues for the S&P 500 are up only 3.6% year over year through the 4th quarter. Earnings over the same time frame are up 8.2%. Those numbers are fair, but the US stock market is on the high side of fair value. We see interest rates moving up, commodity prices moving up, so not a lot of reason to expect higher stock prices in the near term. US stocks sold off 3% in January, rallied 6% in February, and slumped over 1% in the first week of March. A lot of churn for a YTD gain of only 1.4%.

What's on our mind?

Read the entire commentary here.