The very big picture (a historical perspective): The CAPE is now at 35.14 – UP this week 0.40% from last week’s value of 35.00.
The long-term valuation of the market is commonly measured by the Cyclically Adjusted Price to Earnings ratio, or “CAPE”, which smooths-out shorter-term earnings swings in order to get a longer-term assessment of market valuation. In the past, the CAPE ratio has proved its importance in identifying potential bubbles and market crashes. An extremely high CAPE ratio means that a company’s stock price is substantially higher than the company’s earnings would indicate and, therefore, overvalued. It is generally expected that the market will eventually correct the company’s stock price by pushing it down to its true value. The historical average of the ratio for the S&P 500 Index is between 15-16, while the highest levels of the ratio have exceeded 30. The record-high levels occurred three times in the history of the U.S. financial markets. The first was in 1929 before the Wall Street crash that signaled the start of the Great Depression. The second was in the late 1990s before the Dotcom Crash, and the third came in 2007 before the 2007-2008 Financial Crisis.
HISTORY OF THE CAPE VALUE FROM 1871 TO PRESENT
Note: We do not use CAPE as an official input into our methods. However, we think history serves as a guide and that it’s good to know where we are on the historic continuum.
The big picture: The ‘big picture’ is the (typically) years-long timeframe, the same timeframe in which Cyclical Bulls and Bears operate. The Sherman Portfolios DELTA-V Indicator measuring the Bull/Bear cycle finished the week in BULL status at 80.95 UP 1.84% from the prior week’s 79.49. We’ve been in a cyclical bull Market since April 21, 2023.
The complete picture (four indicators across three timeframes): When all four of the Sherman Portfolios indicators are in a POSITIVE status, we read the market as being in a CYCLICAL BULL MARKET.
1. DELTA-V — Positive
2. GALACTIC SHIELD — Positive
3. STARFLUX— Positive
4. STARPATH — Positive
In the markets:
U.S. Markets: Most of the major indexes advanced over the shortened trading week to end a quarter of strong gains. The S&P 500 Index recorded new closing and intraday highs to end the week. The market’s advance was notably broad, with an equal-weighted version of the S&P 500 Index gaining 1.64%, well ahead of the 0.39% increase in the more familiar market-weighted version.
Small-caps also easily outperformed large-caps, and the Russell 1000 Value Index gained 1.79%, in contrast with the 0.60% decline in its growth counterpart. Markets were closed on Friday in observance of the Good Friday holiday but were scheduled to reopen on Monday in advance of many international markets.
Looking at the Indexes: Another good week for the indexes listed below, with the exception of a slight decline from the NASDAQ. Small and midcap had a nice growth week, extending their YTD growth and extending their run streak.
The Dow Jones Industrial Average enjoyed another week of upward momentum, gaining a modest 0.84% to end the week of Mar 28 at 39,807.37 vs the prior week of 39,475.90. Coming off a big growth week, the shorter trading week saw a slight decline for tech-driven NASDAQ index with a dip of -0.30%, closing at 16,379.46. This puts the YTD growth at +10.93%. After closing the trading week with record breaking intraday highs, the large-cap S&P 500 finished up, with 0.39% in gains, closing at 5,254.35 vs last week’s close of 5,234.18. S&P 400 mid cap had another notable week after last week’s gains of 2.31%, this week adding an additional 1.84% to close at 3,046.36 vs last week’s 2,991.26. A clear winner in growth amongst the group this week, the small-cap index Russell 2000 had another week of growth, this time seeing single-week gains of 2.54%, closing at 2,124.55 over last week’s close of 2,072.00.
Commodities/Futures: In futures, Copper continued its decline this week whereas Gold and Silver trended up and Crude Oil had a big week.
GOLD (GC00) had an excellent week of gains, ending the week at $2,254.80 per ounce vs the prior week of $2,166.50, claiming a short week’s growth of 4.08% at market close this week. SILVER (SI00) turned around on a loss last week, gaining 0.15% to a close of $25.10 per ounce over last weeks close of $24.84. COPPER (HG00), copper continued its downward momentum this week, dropping a further 2.63% over the prior week from $4.12 to end this week at $4.01 per pound. CRUDE OIL (CL-1) came off a dollar loss last week to big gains of 3.89% this week, ending it’s per barrel cost of $83.12 vs. $80.01 last week.
VIX closed at 13.01 this week, a 0.38% decrease over last week’s close of 13.06. In the same way as last week, this could be an be an indication that there’s less demand and options prices may start to decline.
INTERNATIONAL MARKETS
|
GLOBAL EXCHANGE/index |
week CLOSE |
% change WEEK |
% change ytd |
|
CANADA – TSX |
22,167.03 |
UP 0.83% |
UP 6.20% |
|
UK – FTSE 100 |
7,952.62 |
UP 0.27% |
UP 2.99% |
|
FRANCE – CAC 40 |
8,205.81 |
UP 0.66% |
UP 8.96% |
|
GERMANY – DAX |
18,492.49 |
UP 1.57% |
UP 10.28% |
|
CHINA – SHANGHAI COMP. |
3,010.66 |
DOWN 1.23% |
UP 1.63% |
|
JAPAN – NIKKEI 225 |
40,168.07 |
UP 3.77% |
UP 20.67% |
The MSCI (Morgan Stanley Capital International) Emerging Markets Index captured even slimmer gains this week over last week, growing 0.10% to close at 1,040.39 vs the prior week of 1,039.32.
In the economy:
U.S. Economic News: INVESTORS AWAIT ECONOMIC IMPLICATIONS OF BALTIMORE PORT CLOSURE. Traders noted that market activity was generally subdued ahead of the holiday weekend, although volumes were expected to pick up to some degree as pension funds and other institutional investors rebalanced portfolios ahead of the quarter’s end. Further observations found that news flow was also exceptionally light, with the notable exception of the collapse of the Francis Scott Key Bridge in the firm’s hometown of Baltimore on Tuesday morning. The collapse cut off shipping access to the Port of Baltimore, one of the nation’s largest ports and its primary port for car and truck shipments. President Joe Biden pledged federal aid to reopen the port would soon be coming, but the broader economic implications of the shutdown remain uncertain, particularly given the long-term diversion of trucking routes while the bridge is rebuilt.
The week’s economic calendar was somewhat busier. On Tuesday, the Commerce Department reported that durable goods orders rose 1.4% in February, somewhat more than expected, although part of the increase was due to a revision in January’s steep decline, from 6.2% to 6.9%. Excluding the volatile defense and aircraft segments — a gauge that is considered to more closely reflect business spending plans — orders rose a solid 0.7%, much more than anticipated and partly reversing two months of declines. New home sales fell unexpectedly in February, but the report of the decline came in the wake of previous news of a jump in sales of existing homes.
CONSUMERS GROW MORE POSITIVE BUT REMAIN WORRIED. Consumer indicators were mixed. On Tuesday, the Conference Board announced that its index of consumer confidence declined slightly in March, defying consensus expectations for an increase. “Consumers’ assessment of the present situation improved in March,” the Board’s chief researcher noted, “but they also became more pessimistic about the future.”
Better news came on Thursday from the University of Michigan’s rival gauge of consumer sentiment, which was revised upward to its highest level in 21 months, thanks in part to waning inflation fears. “Over the first three months of 2024, consumers have consistently expressed that the economy appears to be holding its course,” its chief researcher noted. “However, with the general election looming on the horizon, many mentioned that their views remain tentative and subject to change.”
BOND MARKETS SEE HEAVY ISSUANCE AHEAD OF HOLIDAY. U.S. Treasuries generated positive returns for the week, and traders noted that new issuance was easily absorbed. Elevated issuance weighed on the tax-exempt municipal bond market, however, amid a historically weaker seasonal period for the asset class.
In the investment-grade corporate bond market, issuance ended just above expectations and deals in the beginning of the week were oversubscribed. According to traders, the high yield primary space was also active as some issuers tried to bring new deals to the market ahead of the holiday weekend.
International Economic News: Most European markets advanced in a week of generally light trading ahead of the Easter holiday weekend, with the STOXX Europe 600 Index reaching a record intraday high and gaining 0.59% in local currency terms. The markets’ gains came despite confirmation of a significant slowdown in some major economies.
European government bond yields declined. The European Central Bank (ECB) has flagged a possible rate cut for June, depending on whether wage growth continues to moderate. With data showing eurozone bank lending stagnated again in February, ECB council member Fabio Panetta was the latest to flag a turn in the rate cycle.
UK SLIPS INTO RECESSION IN Q4. The UK’s Office for National Statistics confirmed on Thursday that the country had entered a technical recession for the first time since early 2020, with the economy contracting by 0.3% in the final quarter of 2023, following a 0.1% contraction in the third quarter.
GERMANY’S ECONOMY SHOWS SIGNS OF WEAKNESS. Germany’s Federal Statistical Office reported that retail sales had plunged 1.9% in February — well below consensus expectations for a small increase and the biggest drop in 17 months. Meanwhile, leading economic institutes in Germany said that they expected the country’s economy to grow by 0.1% in 2024, cutting the prior forecast of 1.3%. High interest rates, weak global demand, and political uncertainty dented hopes for a stronger recovery.
RETAIL SALES IN SPAIN TICK UP; INDUSTRIAL PRODUCER PRICES DECLINE. Some better news arrived about the Spanish economy. Retail sales rose 0.5% in February, reversing two months of declines. The country’s National Statistics Institute also reported that industrial producer prices had plummeted 8.2% over the 12 months ended in February, helped by a sharp drop in energy prices.
JAPAN: Japan’s stock markets fell through Thursday’s trading. Investor focus was on the sharply depreciating yen, which hovered near JPY 152 against the U.S. dollar — which is perceived by many as a point that could trigger authorities to intervene in the foreign exchange markets to prop up the Japanese currency. The country’s three main monetary authorities suggested after meeting on Wednesday that they could be ready to stage such an intervention, in the strongest hint to date and after the currency dipped to a 34-year low. The historic weakness in the yen has benefited many of Japan’s large-cap exporters, as they derive a significant share of their earnings from overseas.
The yield on the 10-year Japanese government bond fell to about 0.70% on Thursday, from 0.74% at the end of the prior week. This followed the Bank of Japan’s (BoJ’s) historic monetary policy shift, whereby it raised interest rates from negative territory for the first time in about seven years. Market expectations appear to be converging around two more BoJ interest rate hikes within a one-year period.
A member of the BoJ’s Board said that the end of the central bank’s negative rates policy was a first step toward monetary policy normalization. Steps were taken in response to signs that wages were increasing in tandem with prices, an oft repeated precondition for the BoJ to tweak its policy. Nevertheless, Japan’s monetary policy remains among the most accommodative in the world, and financial conditions are expected to remain accommodative as well, for the time being.
Japan’s levels of inbound tourism reportedly exceeded pre-pandemic levels, with travelers from across the world seeking to maximize the benefits of yen weakness. Notably, tourism from China lagged.
CHINA: Chinese stocks declined for the week ended Thursday as concerns about the continuing property sector downturn weighed on investor confidence. The Shanghai Composite Index retreated 1.23%, while the blue chip CSI 300 gave up 0.68%. In Hong Kong, the benchmark Hang Seng Index edged up 0.25%, according to FactSet.
Chinese Premier Li Qiang told participants at the China Development Forum, an annual summit for global business leaders, that the country is open to foreign investment. Premier Li also pledged that the government will step up measures to support growth in several sectors, including biological manufacturing, artificial intelligence, and the data economy. However, Beijing’s pro-business message came as many investors seek evidence that China will further increase policy support to meet its growth goals. Speaking at the same event, International Monetary Fund Managing Director Kristalina Georgieva said that China’s economy could expand a further 20% over the next 15 years if it conducts pro-market reforms, according to prepared remarks.
In economic news, profits at industrial firms surged 10.2% in the January to February period from a year ago and recovered from a 2.3% decline in 2023, according to the National Bureau of Statistics, aided by policy support and increased overseas demand. The year-over-year increase was also supported by a low base of comparison from last year, when China emerged from nationwide pandemic lockdowns. The latest indicators added to evidence that China’s economy was gaining traction following data from the prior week showing that industrial production, fixed-asset investment, and retail sales picked up in the two-month period. However, deflationary pressures and the ongoing property market slump continue to weigh on investor sentiment.
(Sources: All index- and returns-data from Norgate Data and Commodity Systems Incorporated; news from Reuters, Barron’s, Wall St. Journal, Bloomberg.com, ft.com, guggenheimpartners.com, zerohedge.com, ritholtz.com, markit.com, financialpost.com, Eurostat, Statistics Canada, Yahoo! Finance, stocksandnews.com, marketwatch.com, visualcapitalist.com, wantchinatimes.com, BBC, 361capital.com, pensionpartners.com, cnbc.com, FactSet, Morningstar/Ibbotson Associates, Corporate Finance Institute)
