Take Stock of the Stock Market
Now is a good time to assess your investment portfolio
A recent article by The Daily Wealth posed two questions:
- How much money should you have in US stocks? And…
- After their big rise (up 14% so far in the US this year), are they too expensive to buy?
According to the article, the US is in the midst of an economic recovery with historically low interest rates. In that environment, stocks (especially ones returning cash to shareholders) should command a significant premium over their historical valuations. Given that… US stock valuations are on the cheap side.
The article states that corporate earnings started to rise in early 2010, when the potential for the Great Recession to turn into the Second Great Depression still loomed. Pessimistic commentators quickly credited this earnings growth to cost-cutting – that’s not true growth. And they declared these earnings were unsustainable.
According to the Daily Wealth that is no longer the case as sales are growing steadily again, lending more proof to the sustainability of this recovery. The profit margins for companies in the S&P 500 stock index have reached around 13.5%. That’s about as high as they get. Companies are operating at peak efficiency, suggesting that creative accounting won’t increase earnings figures from here… only true, organic growth will.
The US market still has plenty of room to run. We aren’t seeing as many deep value opportunities as we did two years ago in the US or 12 months ago in Australia, when US stocks were priced at 12x earnings and Australian stocks were priced at 10x and every fundamentally sound business looked cheap. But we still want to own stocks.
Despite all the negative stories you read in the mainstream press, the U.S. economy is gradually improving… stocks are still relatively good values… and earnings are growing says The Daily Wealth.
In Australia, we are still growing our economy and many companies are increasing their revenues and earnings at very steady clips.
If you would like more information on how you can structure your portfolio to benefit, contact UGC to speak with one of our financial strategists for a No Cost, No Obligation consultation on 03 8657 7640 or email [email protected]. We would be more than happy to review your current arrangements and give you the advice you need for a more secure financial future.
The information contained in this report is General in nature and has been prepared without taking into account your objectives, financial situation and needs.