Looking Beyond the Storm
Trendline valuation gauges may offer more prescient investment guidance than provided by conventional valuation metrics.
Sometimes during a market crisis, it’s good to raise your head up, take a deep breath, and consider how things will look down the road a bit. Crises severely shorten investor mindsets. When volatility gets extreme, human nature forces most investors to worry incessantly about where the stock market may be headed in the next few days or even before the day’s close. Such a mindset, however, often causes investors to make snap judgements on issues which are probably mostly random and not always conducive to making money over time.
As I have argued in recent missives, my guess is the contemporary crisis low is in for the S&P 500 Index. Even if this guess proves correct, the stock market may stay volatile in the coming weeks or even for another few months. Nonetheless, it’s probably time to start looking beyond the contemporary storm and get positioned for “what comes next”. In the ensuing weeks, investors should consider using ongoing volatility to move portfolio weights away from defense back toward offense. Strong days in the stock market can be used to lighten up on recent defensive winners and build some cash to be redeployed toward more offensive tilts during days of extreme market weakness. Most traditional valuation tools suggest the stock market is expensive and offers investors little additional potential. However, trendline valuation gauges suggest the contemporary bull market could provide satisfying results for a few more years.
