November 2013 – Monthly S&P 500 Market Strategy Update

Can anything stop this US market?

The new Federal Reserve chair has been appointed.  The US Federal government is back to work.  The political nastiness has subsided so all Americans can focus their anger on the one website that doesn’t seem to work – www.healthcare.gov/.

We have two months to go for 2013 with seemingly no major issue that has the potential to rock negatively this ‘Energizer Bunny’ equity market.

As usual let’s have a look at the S&P 500 Model Price chart.

S&P 500 Index with weekly price bars andEBV Lines (colored lines).

S&P 500 Index with weekly price bars and EBV Lines (colored lines).

As a reminder we aggregate all companies in the S&P 500 Index into one chart on a market capitalized basis (like the S&P 500 Index itself), so we can see where the market – S&P 500 – is trading relative to its EBV lines.

Risk – Reward Metrics of the US Equity Market

As you can observe from the above model price chart, the S&P 500 Index closed at 1761.64 on Friday, November 1.  Our calculated EBV+3 for the month of November is 1614 that is some 8% lower than the current close.  This is your risk in the US equity markets as measured by the S&P 500.  If there was a financial shock of any kind look for a pull back to our calculated EBV (red) line.

The reward, obviously it is the top of the EBV zone, is calculated at EBV+4 or 2019 or some 15 percentage points higher than the November 1 close.  So obviously the reward is higher than the risk involved and US equities – principally large capitalized companies – remains a good deal for investors.

Equity Markets Gearing up for 2014

Markets are in an optimistic mood these days about 2014.  The International Monetary Fund (IMF) predicting growth at 1.6% for the US in 2013 is looking for 2.6% in 2014.  Also analysts are predicting 11% profit growth in American companies in 2014.  If anything should happen to these rosy forecasts then a market correction would be understandable but as it stands today the equity markets are looking forward to 2014 and maybe you should too.

One response to “November 2013 – Monthly S&P 500 Market Strategy Update

  1. Phil November 4, 2013 at 3:00 pm

    I’m always concerned when there’s no saber rattling, leaving the market exposed, and the risk/reward profile less in our favor than it was a month ago. Having said that, I agree that U.S. large caps look pretty good still but I would love a pullbck to EBV+3

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