The stock market had an up-and-down month, ultimately resolving with a modest advance. The periodic selloffs were triggered by a deluge of earnings, as a clearer picture began to emerge of an economy that is not as strong as the optimism from a few months ago would have warranted (yet still growing slowly as it has been doing for over five years). As expected, multinational companies’ earnings took hits from the strong dollar while Greece’s place in the euro zone furthered investor anxiety.
With such a backdrop, the Federal Reserve’s plan to hike interest rates appears to be on pause, and this perception (along with some positive earnings reports) triggered the rebounds that came after each down move. Furthermore the bizarre situation of negative interest rates in Europe makes it even more unlikely that the Fed will raise interest rates in the near term.
My outlook continues to be cautious. On a top-down basis, valuation is a concern along with certain bubble-like conditions that are symptomatic of being late in a bull market cycle. From a bottom-up approach, it continues to be extremely challenging to find attractive stocks to buy. Accordingly I continue to retain a very limited market exposure. I believe that is worth the wait for better opportunities that can lead to robust future returns.
Nevertheless I was able to be at least somewhat active this month finding values. While my preference remains for the giant, dominant companies in which I feel it is appropriate to purchase full-sized positions, this month I made some smaller investments that cumulatively can still have a meaningful effect. One example is Public Service Enterprise Group. I stand by comments from last month that utility investors might have a false sense of safety due to stretched valuations because of yield-seeking behavior in this zero interest environment (this is also true of a couple of other “safe haven” sectors such as consumer staples and healthcare). Yet Public Service Enterprise Group, which happens to be my local utility, is a well-managed company that trades at a much lower valuation than the group with a far healthier balance sheet.
~~Michael Berlin can be contacted at email@example.com 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.