June 2014 – Monthly S&P 500 Market Strategy Update

What can one say about the US equity markets? No real volatility and hitting new highs everyday – it seems.

 

As usual let’s have a look at the model price chart of the S&P 500 Index.

 

S&P 500 Index with EBV lines

S&P 500 Index with EBV 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.

 

As you can observe the US market, as defined by the S&P 500, is still in the middle of the zone bookmarked by EBV+3 and EBV+4. If the market rallied to EBV+4 (2142) this would represent a gain of some 11%. If the market corrected back to EBV+3 (1712) investors would be suffering losses of the same 11%.

 

Getting ready for the ‘Dog Days of Summer’

 

Summer is finally here after a long and painful winter and iffy spring. One of the old quotes about the market handed down from one generation to the other is “never sell a dull market short”. I think this quote is apt because superficially the US market does seem dull. However on a daily basis all the major US indices seem to be a few points below their all-time highs until a late afternoon rally pushes them forward (up) giving the financial press and media urgency to report ‘all-time market highs’ to the distracted and disinterested.

 

“Does anyone really care?” I ask myself frequently.

 

So what is there to say? After a fairly slow economic report for the first quarter of 2014 – US GDP contracted 1% – everyone is looking for a reacceleration of economic activity for the rest of 2014. Equity values are still cheap (S&P 500 just over EBV+3) with lots of room to the upside.

 

So relax, take it easy because second quarter earnings are on the way and with September and October coming, these two months always seem to be eventful for one reason or another.

 

As always, see what happens.

Leave a Reply

Fill in your details below or click an icon to log in:

WordPress.com Logo

You are commenting using your WordPress.com account. Log Out / Change )

Twitter picture

You are commenting using your Twitter account. Log Out / Change )

Facebook photo

You are commenting using your Facebook account. Log Out / Change )

Google+ photo

You are commenting using your Google+ account. Log Out / Change )

Connecting to %s