The post-election rally faded in March as the failed healthcare bill cast doubt about the ability of the new administration to carry out its tax and regulatory agenda. My outlook remains mixed due to solid earnings, low interest rates and the long-term upward trajectory of the stock market balanced by high valuations (using reliable measures such as cyclically adjusted price/earnings, market cap/GDP and price/revenue), rising rates, market complacency and deteriorating corporate balance sheets.
This month I purchased a new position in a previous holding, Wells Fargo. Bank valuations have risen dramatically, but Wells has been much more restrained due to the very ugly fraudulent account opening scandal. When bank stocks pulled back this month, it allowed for an attractive entry point. While the scandal is optically awful, I agree with Warren Buffett’s ultimate synopsis: “I don’t think, in terms of the earnings power of the company five years from now, it’s material.”
~~Michael Berlin can be contacted at firstname.lastname@example.org and at (631) 629-4928 .
The information included in this article is not intended to be used as a basis for making investment decisions nor should it be constructed as a recommendation to buy or sell any specific security. Consult your investment professional for additional information and guidance.