The US stock market is gonna go pop
Discussion
Or it might not. But either way an interesting read on the CAPE valuation and forecast from this author https://www.ukdividendstocks.com/blog/sp500-cape-v...
My 2p amateur opinion is it still feels like money is chasing the short-term Fed optimism rather than the medium-to-longer-term earning fundamentals
Thoughts?
My 2p amateur opinion is it still feels like money is chasing the short-term Fed optimism rather than the medium-to-longer-term earning fundamentals
Thoughts?
Phooey said:
Or it might not. But either way an interesting read on the CAPE valuation and forecast from this author https://www.ukdividendstocks.com/blog/sp500-cape-v...
My 2p amateur opinion is it still feels like money is chasing the short-term Fed optimism rather than the medium-to-longer-term earning fundamentals
Thoughts?
Thanks for posting the link, the US market is almost a slave to earnings valuations over the longer term, the risk free rate etc. Back to PE ratios, it seems difficult to think that most people would be ok with only getting a similar return for the risk of holding shares than 2yr Treasury ( clearly a bit more for equities). I haven't looked but it's a about 50 basis points as of a few days ago, the historical is 250 to 400 basis points and readjust earnings to the consensus $210 to $220 and a PE from 18.5 to nearer 15 ( higher end historically for Recession) My 2p amateur opinion is it still feels like money is chasing the short-term Fed optimism rather than the medium-to-longer-term earning fundamentals
Thoughts?
So say PE is 16 if the FED pauses at 5.25 and earning hold $220, the S+P is then at 3520, this was around the Oct lows.
If earnings drop to $200 , 3200 at 16.
To give this some context, in previous recessions, the PE was between 11 and 15.
It's hard to see armageddon but with volatility it could be painful especially if the US labour market stays stronger, I see the Bond market are now reducing the likelihood of rate cuts in 2023.
The S+P is all about earnings and they are being eroded due to dis-inflation but core costs are staying higher.
nunpuncher said:
I won't even pretend to understand half of what DaveA8 said but all I know is that I work primarily with American financial bods and the general sentiment seems quite positive.
The point you make is actually very relevant because unlike in 2007/2009 where banks were at risk, due to the last 14 yrs, banks are extremely well capitalised and doing well at present and barring a nasty shock will probably continue, also as interest rates have risen, banks are getting more money but paying very low rates on current accounts.This is more likely to be an earnings recession and bank stocks may go down like others, if in fact it occurs but they seem to have made or are making provisions for bad debts.
It's a curious notion a 'crash'
Let's call it a correction, major or mini these do occur and should one wish to take cash out or is worried about timeframes I could see this would be a preoccupation.
But as Warren Buffet says, buy a good cross section of American businesses and revisit in 10/20/30 years whilst dripping in.
Barring armageddon the market does have to have shown recovering from some pretty major events...
Let's call it a correction, major or mini these do occur and should one wish to take cash out or is worried about timeframes I could see this would be a preoccupation.
But as Warren Buffet says, buy a good cross section of American businesses and revisit in 10/20/30 years whilst dripping in.
Barring armageddon the market does have to have shown recovering from some pretty major events...
Exciting times, watching hubris, herd mentality, law of unintended consequences, all play out.
The macro back drop does seem a bit off to me.
Every month rates rise to quell inflation, while businesses margins make them less appealing… seeing them engage in buy-backs… and gov debts give a solid yield… hmmm, just hmmm… when the selling starts, and the tide goes out, I fear lots of naked swimmers will be evident
The macro back drop does seem a bit off to me.
Every month rates rise to quell inflation, while businesses margins make them less appealing… seeing them engage in buy-backs… and gov debts give a solid yield… hmmm, just hmmm… when the selling starts, and the tide goes out, I fear lots of naked swimmers will be evident
It is a good article, and the 10 year view is not far off what Vanguard and GMO and some others are saying.
He isn't predicting a sudden crash necessarily but a resumption of last years bear market which only really got to "Fear" on the emotional cycle graph but not really "Desperation" let alone "Panic" or "Capitulation" like 2009.
You don't have to sit in cash waiting anyway, there is a whole world of investing outside of the S&P500, which is the point. Why buy the most overvalued market at the worst time when you can make just as much with bonds over the next decade.
He isn't predicting a sudden crash necessarily but a resumption of last years bear market which only really got to "Fear" on the emotional cycle graph but not really "Desperation" let alone "Panic" or "Capitulation" like 2009.
You don't have to sit in cash waiting anyway, there is a whole world of investing outside of the S&P500, which is the point. Why buy the most overvalued market at the worst time when you can make just as much with bonds over the next decade.
As a novice looking the enter the market soon with, to me at least, a not insignificant amount of cash, the American market is something I am very wary of, and reading a topic with the title of this one is only playing on those concerns.
I was looking at Vanguards Developed World All Cap Equity Index Fund, and assumed it would be quite an even spread over the developed markets across the world, however looking further I was, maybe naively, surprised to see it was made up of 70% North American stocks! Maybe I need to look at something more 'World' than this
I was looking at Vanguards Developed World All Cap Equity Index Fund, and assumed it would be quite an even spread over the developed markets across the world, however looking further I was, maybe naively, surprised to see it was made up of 70% North American stocks! Maybe I need to look at something more 'World' than this
Daaaveee said:
As a novice looking the enter the market soon with, to me at least, a not insignificant amount of cash, the American market is something I am very wary of, and reading a topic with the title of this one is only playing on those concerns.
I was looking at Vanguards Developed World All Cap Equity Index Fund, and assumed it would be quite an even spread over the developed markets across the world, however looking further I was, maybe naively, surprised to see it was made up of 70% North American stocks! Maybe I need to look at something more 'World' than this
Vanguard is US company so very biased towards North America but much lower fees than say Hargreaves Lansdowne. But HL is British so has a lower North America % and a bit more in UK. It tends to be driven by what is the base currency to reduce volatility.I was looking at Vanguards Developed World All Cap Equity Index Fund, and assumed it would be quite an even spread over the developed markets across the world, however looking further I was, maybe naively, surprised to see it was made up of 70% North American stocks! Maybe I need to look at something more 'World' than this
You could invest in the Vanguard Global then mix it up with some others e.g. emerging market or Asia but that is considered riskier and higher volatility but it's anyone's guess.
The thing is with emerging markets is their is less stability with politics so although business might be better, there are other factors at play.
leef44 said:
Daaaveee said:
As a novice looking the enter the market soon with, to me at least, a not insignificant amount of cash, the American market is something I am very wary of, and reading a topic with the title of this one is only playing on those concerns.
I was looking at Vanguards Developed World All Cap Equity Index Fund, and assumed it would be quite an even spread over the developed markets across the world, however looking further I was, maybe naively, surprised to see it was made up of 70% North American stocks! Maybe I need to look at something more 'World' than this
Vanguard is US company so very biased towards North America but much lower fees than say Hargreaves Lansdowne. But HL is British so has a lower North America % and a bit more in UK. It tends to be driven by what is the base currency to reduce volatility.I was looking at Vanguards Developed World All Cap Equity Index Fund, and assumed it would be quite an even spread over the developed markets across the world, however looking further I was, maybe naively, surprised to see it was made up of 70% North American stocks! Maybe I need to look at something more 'World' than this
Daaaveee said:
As a novice looking the enter the market soon with, to me at least, a not insignificant amount of cash, the American market is something I am very wary of, and reading a topic with the title of this one is only playing on those concerns.
I was looking at Vanguards Developed World All Cap Equity Index Fund, and assumed it would be quite an even spread over the developed markets across the world, however looking further I was, maybe naively, surprised to see it was made up of 70% North American stocks! Maybe I need to look at something more 'World' than this
By choosing the Developed World tracker, you'd be choosing something that excludes large parts of the world. As such it has a higher weighting to the parts that are left. I was looking at Vanguards Developed World All Cap Equity Index Fund, and assumed it would be quite an even spread over the developed markets across the world, however looking further I was, maybe naively, surprised to see it was made up of 70% North American stocks! Maybe I need to look at something more 'World' than this
In case poster above has caused confusion, this is nothing to do with Vanguard being American.
Vanguard are simply offering a product tracking an index. For a more diverse spread you'd want to choose something tracking a more diverse index. A starting point would be the MSCI ACWI which includes Asia etc;
https://www.msci.com/documents/10199/a71b65b5-d0ea...
Products that track this market are available from HSBC or iShares to name 2. Vanguard offer one that tracks the FTSE World rather than Developed World;
https://www.google.com/url?sa=t&rct=j&q=&a...
ACWI and FTSE World are both around 60% US - it's a reflection of the consensus opinion of all the active participants in the market who think the US should be 60% of the global stock market.
If you specifically want to have less US and more of something else, you are betting against the market. Not saying you'd be wrong, who really knows.
You may want to look at something like AJ Bell or HSBC's multi asset ranges, where the most aggressive are 85/90% + stocks. These are passive fund of funds = there is a fund manager who makes up this one stop shop comprised of index funds of different countries. For example the AJ Bell Adventurous one has a weighting of only 28% US;
You can see top holdings and how the portfolio is constructed below as an example;
It is worth nothing this has underperformed the MSCI ACWI and Developed World Index every year......until last year.
As such the active intervention as to which countries should be weighted to which % detracted from returns, but last year when the US underperformed this fund beat the ACWI by circa 7%.
If someone wants a one stop shop passive fund with global equity exposure but is bearish on the US, this seems a sensible option to explore in more detail to assess suitability of.
Edited by simon800 on Friday 10th February 17:16
Edited by simon800 on Friday 10th February 17:17
not wishing to pour scorn on the various comments from the more enlightened folk above...but....remember that whatever you consider the most appropriate way to invest, those with more computers, algorithms, PHDd employees and 'friends in high places' have already skewed the markets to create the basis upon which the rest of us base our various predictions.
Tye Green said:
not wishing to pour scorn on the various comments from the more enlightened folk above...but....remember that whatever you consider the most appropriate way to invest, those with more computers, algorithms, PHDd employees and 'friends in high places' have already skewed the markets to create the basis upon which the rest of us base our various predictions.
You left out , The Matrix and the Rothschilds, two of the biggest influences in modern investingTye Green said:
not wishing to pour scorn on the various comments from the more enlightened folk above...but....remember that whatever you consider the most appropriate way to invest, those with more computers, algorithms, PHDd employees and 'friends in high places' have already skewed the markets to create the basis upon which the rest of us base our various predictions.
Exactly, according to Plus 500 "CFDs are complex instruments and come with a high risk of losing money rapidly due to leverage. 84% of retail investor accounts lose money when trading CFDs with this provider. You should consider whether you understand how CFDs work and whether you can afford to take the high risk of losing your money."How do you think the minority on the stock market get rich, from the 84% of people who have lost before they have even began.
Even groups like wallstreetbets and the whole GameStop thing, I bet the majority of them lost money in the long run.
Interesting how there seems to be an obsession with making investment ever more complicated.
Eg. Must have extreme geographical diversification.
Think of a large UK business.
It probably does business in 160 countries around the world.
Likely has factories in scores of countries around the world.
With just a single example, you have;
- currency diversification,
- geographic diversification.
- economic diversification.
Keeping investment as simple as possible often works well.
A recent practical example of FX diversification.
UK listed Shell plc increased their last dividend by 20%.
When that is paid, the amount after FX adjustment is likely to be 25%.
Daaaveee said:
As a novice looking the enter the market soon with, to me at least, a not insignificant amount of cash, the American market is something I am very wary of, and reading a topic with the title of this one is only playing on those concerns.
I was looking at Vanguards Developed World All Cap Equity Index Fund, and assumed it would be quite an even spread over the developed markets across the world, however looking further I was, maybe naively, surprised to see it was made up of 70% North American stocks! Maybe I need to look at something more 'World' than this
Keep in mind that if you look at a graph of the stock market over time at pretty much any point someone is always saying "the US stock market is gonna go pop".I was looking at Vanguards Developed World All Cap Equity Index Fund, and assumed it would be quite an even spread over the developed markets across the world, however looking further I was, maybe naively, surprised to see it was made up of 70% North American stocks! Maybe I need to look at something more 'World' than this
Now pick a point on the graph and look to the right of it and see what usually happens if you give it long enough.
Also keep in mind that investing that "not insignificant amount of cash" doesn't have to be done in one go (historically that's usually worked out best but psychologically a lot of people find it hard to do) and it isn't "stocks or nothing" there are plenty of option depending on your appetite for volatility.
Vanguard are a good choice IMO.
Look at FTSE Global All Cap for all world exposure and look at their LifeStrategy range to get an idea of how it doesn't have to be "all or nothing".
Other providers do similar ranges of funds.
The US might be expensive but you wouldn’t want to bet against it over the longer term. And regarding time - if you’re looking at a less than 5yr time span then you might be wise to consider reducing a bit of US, or at least not going all in on US. But on the other side of the coin, and if you have greater than 10/15/20 yrs to gradually accumulate units then there’s a strong argument to say when the US next enters a bull market you’ll look back at today and thank yourself for being heavily weighted towards it
Phooey said:
The US might be expensive but you wouldn’t want to bet against it over the longer term. And regarding time - if you’re looking at a less than 5yr time span then you might be wise to consider reducing a bit of US, or at least not going all in on US. But on the other side of the coin, and if you have greater than 10/15/20 yrs to gradually accumulate units then there’s a strong argument to say when the US next enters a bull market you’ll look back at today and thank yourself for being heavily weighted towards it
Agree....but I think there is also a case for China once it gets over its high handed tech clampdown and sorts out its real estate method of selling.The US also has a lower number of people swinging for the fences compared to UK. Trading, or trying to,
Investing is much more tax friendly, If you can get your Adjusted gross income below 80K then C.G.s are zero rated (remember only realised C.G.s are taxed) If we have a bad year like last year we can harvest a few losses (Reinvest within the rules) . and offset the losses and take more gains. Reinvesting resets the cost basis for future gains. It's a game we are allowed to play
While this scenario exists, so will US markets.
Quite wealthy people often only end up paying 10 to 12%. If you listen to US political rhetoric you hear how they are going to tax the rich, which translates to those with high earned income. Those rates are higher than the CG rates which start at 10% (or possibly 12 now with Secure II)
PS the wealthy don't have earned income
As a UK investor I would take advantage of anything above 1.23 to grow a small US position possibly in utilities at present or S & P later.
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