Be Mindful of
Rich Valuations in Low - Volatility Stocks.
After pricing its IPO at $ 17 a share, the owner of the popular disappearing - message app has a market value of roughly $ 24 billion, more than double the size of rival Twitter (twtr) and
the richest valuation in a U.S. tech IPO since Facebook (fb) five years ago.
Not exact matches
The blistering consensus: that
in shopping itself at far too
rich a
valuation and pretending to be more than it was, Wired Ventures fell victim to its own greed and famous arrogance.
Our friends at Wealth - X, a firm that does research and net - worth
valuations on ultra-high net worth individuals, compiled a list of the
richest people
in the world under 35.
The considerations behind shifts
in these market return / risk profiles should be clear - the strongest profiles emerge when a significant retreat
in valuations is coupled with an early improvement
in market internals; the weakest profiles emerge when overvalued, overbought, overbullish conditions develop or when
rich valuations are joined by broadening divergence or deterioration
in market internals.
When you look back on this moment
in history, remember that
rich valuations had not only been associated with low subsequent market returns, but also with magnified risk of deep interim price losses over shorter horizons.
Rich valuations are associated not only with weak future return prospects, but with unusually deep prospective losses
in the interim.
One example, from a Dow Theory perspective, is to note the classic divergence or «non-confirmation» here — a high
in the Industrials with the Transports lagging, coupled with
rich valuations and lopsided bullish sentiment.
«M&A activity globally is very high, which is common
in the late stages of an equity bull market as both private equity and corporate owners look to cash
in on
rich valuations,» Lait explains.
In the near term, keep in mind that valuations are ric
In the near term, keep
in mind that valuations are ric
in mind that
valuations are
rich.
At the surface, when we look at
valuation measures and other fundamentals and compare them to historical precedents, there is a case to be made that stocks (
in particular
in the US) are above fair value, if not
rich.
Essentially, this is equivalent to saying that investors have shifted toward risk aversion
in an environment where
valuations are
rich and risk premiums are extremely thin.
Last month, at the MarketCounsel Summit
in Miami, during a panel discussion about advisory - firm
valuations,
Rich Gill of Wealth Partners Capital Group cited what might be 2018's most bankable theme
in the financial advice space.
It's important to distinguish between the level of
valuations, which has indeed become breathtakingly extreme
in recent years, and the mapping between
valuations and longer - term market returns (which we observe as a correspondence, where
rich valuations are followed by poor returns and depressed
valuations are followed by elevated returns).
Still, given the market's
rich valuation, one would have expected
in advance that the Fund would be largely hedged, and to that extent, the Fund's hedging approach performed
in 2006 basically as expected - it muted the impact of market fluctuations on the Fund, and contributed several percent
in «implied» interest.
With regard to the current market cycle, the period since 2000 has been unique
in that it has reflected an environment of persistently
rich valuations.
Our measures of market action are still broadly unfavorable, and allowing even the mildest adjustment for profit margins and the position of earnings
in the economic cycle,
valuations remain
rich.
With
valuations very
rich, bullish sentiment high, and stocks generally overbought, there's a certain momentum to the market that makes it likely -
in terms of probability - that stocks will be higher
in the weeks ahead.
Equity
valuations may look
rich compared with history, but we do not believe this is something to be feared, as we write
in our new Global equity outlook Goldilocks and the
valuation bears.
In contrast,
rich valuations have produced far more tepid returns.
JPMorgan points out that US equities are 2 standard deviations
rich to their average
valuation and are
in fact the most expensive
in the developed world...
On the other hand, both historically and even since 2009, when investors have shifted toward risk - aversion, as evidenced by divergent market internals,
rich valuations and fragile economic foundations have typically resulted
in steep market losses.
Stocks have done well and are at
rich valuations not because they are appropriately priced, not because they deserve these
valuations, but rather because investors have been
in a speculative mood.
In contrast, the recent «bull market» (probably better viewed as an upward correction in an ongoing secular bear market) started at valuations too rich to justify an aggressive investment positio
In contrast, the recent «bull market» (probably better viewed as an upward correction
in an ongoing secular bear market) started at valuations too rich to justify an aggressive investment positio
in an ongoing secular bear market) started at
valuations too
rich to justify an aggressive investment position.
The «canonical» market peak typically features
rich valuations, rising interest rates, often a reasonably extended and «flattish» period where, despite marginal new highs, momentum has gradually faded while internal divergences have widened, and finally, an abrupt reversal
in leadership, from a preponderance of new highs over new lows (both generally large
in number) to a preponderance of new lows over new highs, with the reversal often occurring over a period of just a week or two.
Longer - term, the market's
rich valuations on a variety of internals is already enough to anticipate fairly unsatisfactory returns for buy - and - hold investors
in the major indices over the coming 5 - 7 years.
According to some neat supporting research from James Montier, the global equity strategist at Dresdner, Kleinwort, Wasserstein
in London, the U.S. is hardly alone
in these
rich valuations.
This measure puts U.S. equity
valuations in the
richest quartile of their history, as the blue line indicates
in the chart.
As far as top 20
richest clubs are concerned according to recent forbes
valuation, eight premier league clubs feature
in top 20 and we might expect a few more
in couple of years time.
Whether or not you've had luck
in the dating world this year, online dating site stocks have performed quite well
in... Match Group Downgraded On
Rich Valuation
And it is what fuels the controversy over state school funding generally — poor school districts under - resourced compared to districts that are
rich in property
valuation.
But as John Hussman said
in his October 17th Weekly Market Comment, «passive returns look glorious
in the rear - view mirror precisely because Fed - induced yield - seeking speculation has driven nearly every asset class to
rich or obscene
valuations in recent years.»
Within credit we prefer up -
in - quality exposures and favor the U.S. over Europe, where
richer valuations mean lower income potential and higher sensitivity to interest rates.
This measure puts U.S. equity
valuations in the
richest quartile of their history, as the blue line indicates
in the chart.
As of last week, the Market Climate for stocks remained
in the most negative 0.5 % of all historical observations, and was characterized by
rich valuations, unfavorable market action, and a variety of hostile «Aunt Minnies» that are associated with poor subsequent returns.
What Bernanke views as a «wealth effect» is simply the
richer valuation of existing cash flows that goes hand
in hand with lower prospective returns
in the future.
Equity
valuations may look
rich compared with history, but we do not believe this is something to be feared, as we write
in our new Global equity outlook Goldilocks and the
valuation bears.
We'll start with the fact that there is [sic] essentially four kinds of penny stock companies
in the Pump & Dump world: (1) the kind where the management is
in on the scam and is directly knowledgeable and complicit with the intent to deceive the public; (2) the kind where some poor schmoe has a great idea (at least he thinks it is) that requires financing, and becomes the mark of a parasitic «funder» who makes all kinds of promises of unlimited monies and
riches beyond the mark's wildest dream; (3) the kind where the company is absolutely for real but the shares have been hyped (sometimes hijacked) into ridiculous
valuations; and, (4) a hijacked empty and inactive shell.
Presently, deteriorating stock market internals suggest fresh skittishness among investors, which coupled with still -
rich valuations (on the basis of normalized earnings) often results
in particularly negative outcomes for stocks.
Looking at listed companies
in the US now, following the rise
in equity
valuations and borrowing for buybacks, it would be hard to characterize the average stock as undervalued, or cash
rich.
As of last week, the Market Climate
in stocks was characterized by a combination of
rich valuations, unfavorable market action, continued negative economic pressures on forward - looking indicators, and additional indicators (sentiment, credit spreads, etc) associated with a poor average return / risk profile
in stocks.
In contrast,
rich valuations have produced far more tepid returns.
Typically, when stocks trade at very
rich valuations, a slight misstep
in a quarter can lead to a dramatic sell - off.
«Although equity
valuations do not appear to be
rich relative to Treasury yields, equity prices are vulnerable to rises
in term premiums to more normal levels, especially if a reversion was not motivated by positive news about economic growth,» the Fed said.
Valuations, however, are still
rich, and the numerous risks that are building could place them
in jeopardy.
Even at historically
rich valuations, Hong Kong's office market is extremely active while investors
in the retail market are waiting for clearer signs of a turnaround before committing.