This Bull May be Younger than You Think!Sheaff Briefs Editor
For investors worried that the stock market is so high that it has to be headed for a drop, Sheaff Brock Director Jim Murphy wants them to know he’s not having any of it. “At Sheaff Brock, we believe this is a ‘market of stocks,’ not a ‘stock market,’” he explains.
Translation: The big upward price movement in the Dow has been primarily driven by its most expensive stocks, specifically the FANG (Facebook, Apple, Netflix, Google) and Microsoft. There are many other stocks in our “market of stocks,” Murphy points out, as well as many industries represented in addition to technology companies like the FANG.
We believe it can be a mistake, he concludes, to judge the entire market based on a price-weighted index like the Dow, or even based on a market-cap-weighted index such as the Standard & Poor’s 500. In fact, Murphy points out, Sheaff Brock portfolio managers strive for equal weightings in stock selection.
In equal weighting, the smallest companies are given weight equal to that given the largest companies. The Guggenheim S&P 500 Equal Weight ETF, for example, provides the same exposure to the smallest companies in the S&P as to giant corporations.
“As we look at the breadth of the market as opposed to the technology stocks surging upwards, it becomes apparent that stocks as a whole are NOT yet fully valued,” USA Today’s Adam Shell comments, “The U.S. stock market isn’t likely to shoot up another 10% to 20% very quickly and will probably pull back a bit in the coming weeks and months, so it may be frustrating for anyone looking to get a quick gain out of stocks. … On the flip side, investors with time to ride out any short-term market storm should not rule out getting IN the market now.”
Although Sheaff Brock relies more heavily on fundamental stock analysis as compared with technical analysis, Murphy finds one article written by technician J C Parets in Modern Trader particularly apropos. Parets argues that “a bear market for stocks ended in the first quarter of 2016 and a new cyclical bull market began. … We are much more likely to be in the early stages of a bull market than in the later stages.”
Sheaff Brock’s message to investors: Don’t be scared off by the Dow Jones’ scaling the 22,000 mark. The bull market might be a lot younger than you think!