Structure Matters: Multiple Expansion on April Fool’s Day?
Happy April 1, 2019 – Otherwise known as April Fool’s Day!
I am sorry. I find some irony to the fact that on April Fool’s Day 2019 the media is hyping the probability of new highs on the S&P 500 Index (2930.75 – Set on 9/20/18). Of course, new highs could add another 6-10% to returns to the current level of 2837, but so many seem to forget the December 24th low of 2351. All this leads me to conclude that the the optimism about the index does not have a strong set up. YTD the index performance, according to Bloomberg is up about 13%. Clearly, there are plenty of signs of risk so downside to old lows must be considered a possibility. Remember, it is usually what we don’t know that messes up our forecasts and life plans.
With such irony before us, my advice is to be incremental in your beliefs and investment allocations and if you are a long term investor please ignore the hyperbole. Alternatives and or cash on the side lines can provide a balance for when liquidity and or optimism dries up. To that point, we host due diligence calls in the Tank with our members focused on market alternatives that are designed to move up when the U.S. markets go down. An example of these due diligence discussions include AGFIQ’s Neutral Anti-Beta Strategies (BTAL). This is important because in order for the S&P 500 to go up we need either earnings to accelerate or a multiple expansion. https://www.financialsamurai.com/2019-sp-500-price-target-earnings-estimates/.
Wall Street is known for targeting round numbers like 3,000, but make sure you have a plan for the next 6%.
Happy April Fool’s Day! https://www.thestreet.com/lifestyle/history-of-april-fool-s-day-14908127
