Today is the first Friday of the month so, of course, that means today is jobs day as the Bureau of Labor Statistics released its monthly jobs report at 8:30. After the economy added 200k jobs or more each of the last 7 months, a streak that hasn’t happened since 1997, economists were anxious to see if that streak could continue. Private payroll firm ADP earlier this week said private payrolls climbed 204k and market expectations for the jobs report were as follows:
In our blog post Don't Panic Over CAPE, we reference a strong rebuttal to the notion that stocks are signficantly overpriced relative to historic norms by Philosophical Economics.
Particularly interesting to me were "The Big Three" drivers of Bull and Bear markets. War, High Inflation and Financial Panics are the triggers of sudden valuation collapses. Peace, Low Inflation and Economic Stability are the foundations of Bull markets. Clearly, "The Big Three" favor equities ahead.
A popular topic of conversation amongst equity investors is the Shiller Cyclically-Adjusted Price-Earnings, or CAPE ratio. Specifically, investors are concerned by the elevated level of CAPE in relation to its ‘historical mean’. CAPE is a valuation measure calculated by dividing an inflation-adjusted index with the average of its inflation-adjusted annual earnings over the past 10 years. High valuation periods are taken to predict lower expected future returns and increased risks of significant drawdowns. Before we validate or dismiss this fear there are two material questions to ask: is CAPE a perfect measure of valuation and is it accurate in signaling market tops and bottoms?
Lowell Pratt was recently interviewed by The Wall Street Transcript to discuss the Burney Company's history and investment strategies.
Lowell D. Pratt Jr. discusses the construction of and philosophy behind his firm’s Master Portfolio and SSR Strategy. The Master Portfolio has a consistent value influence with a tendency toward small and midcap stocks, while the SSR Strategy employs a customized process that moves from large to small and value to growth over time.
Both the S&P 500 and the Dow Jones Industrial Average are indexes that measure large-cap stocks. It would seem that they should track each other rather closely so it is interesting that the Dow has increased only 3.4% so far in 2014 while the S&P 500 increased 8.4%.