August Market Realities
With the headlines touting 52 week highs these days and the talk of a wild bull run in the market, it would be easy to assume that we’re back on easy street. As always, it is useful to take a step back and look at the big picture. The chart below, (hat tip to Gary Shilling) shows that in real terms, the S&P is still well below its 2000 highs over thirteen years later, having put investors through a very rocky ride if they’d been fully and exclusively 
invested in equities.
The stock market now faces a variety of headwinds that warrant close attention.
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A potential renewal of a contentious debt-ceiling debate by the end of September.
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Sentiment is running at highs similar to those seen just before the 2007 peak.
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Earnings growth was down to a meager 1% over last year in the most recent quarter.
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Revenue growth has been pared down to low single digits with continued reduction in clarity of outlook.
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Margin debt has risen over 30% in the past year, which means this is a highly leveraged market. Recall our discussions in previous newsletters of the volatility and risks associated with leverage.
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Valuations have P/E ratios hitting up against 3 year highs.
Bottom Line: Equities have been on a tear lately, driven largely by the Federal Reserve but we are still in a range bound market with increasing headwinds.
