March 2017 Market Update

February turned out to be a great month for the stock market in general. With the Dow up 4.77% and the Russell 2000 (small company stocks) up 1.84%, and with the S&P and NASDAQ falling between those two, everyone enjoyed increases in their values last month. While it is no secret that I am keeping a close eye on the very high Shiller P/E Ratio, the performance of the stock market continues to make my cautious approach look out-of-touch with what is actually happening. I am aware that the market doesn’t show much balance or efficiency in the short run, but becomes very efficient in the long run. I know that from a value standpoint the market seems to be about 40% overpriced, but I also know that it can become much more overpriced before capitulating and falling to a historic fair valuation. That’s why we do not sit on the sidelines when the market is showing momentum like it is now, even though it seems so overpriced. Our goal and management style, for the last four years, has been to ride the momentum of the market when it has been going up, but be prepared to step out of the market when (not if) it starts a long slide. The Bull we are in right now started in March of 2009, making it the 2nd longest Bull Market in history. One would think that this long bull, combined with such high valuations would cause us to just pull everything out and sit there until this bubble bursts, but doing so COULD cause us to lose two or three more years of growth. So at present we remain mostly invested, and will until the momentum changes. Below is a chart you may see at times this year. While I put the chart only marginally closer to having any relevance to the stock market direction for the year as I do which Pro Football team wins the Super Bowl, it is interesting that it has never been wrong. Sam Stovall, Chief Investment Strategist at CFRA, notes that one indicator he follows just got triggered. He notes that, since 1945, there have been 27 years when the S&P 500 has achieved gains in both January and February. The stock index then finished up for the year (on a total-return basis) in every single one of those years. According to Stovall, that’s going 27 for 27, or batting a thousand. The average rise in those years was a way-above-average +24% according to Stovall’s research. While a heck of a precedent, past performance is no guarantee of future results!