Last month, the Russell 2000 index of small cap stocks fell 0.3%, while the S&P 500 presented a positive 2.3%, making 2011 the 17th year since 1925 that small cap stocks fell behind the large cap stocks in January. Will the old adage go that if large cap stocks beat small cap stocks in January, the trend will continue for the year?
Today, the US stock market is about 30% overvalued relative to the most reliable predictor of future long-term returns: the cyclically adjusted PE (price-to-earnings) ratio. It is prudent therefore to plan for a more subdued inflation-adjusted rate of return from stocks from January 2011’s starting point and to diversify your wealth into asset classes and strategies beyond stocks and bonds, even if it is likely that stocks are going to outperform bonds in a rising interest and inflation rate environment.
Risk is a component of almost every aspect of human life. In some situations, risks are relatively minor and have potentially little impact. In other, more serious situations, risk can pose dangers to life and livelihood.
Our Investment Strategy Team addressed the issue of the transition to a new bipolar global economy characterized by debt, deflation and adverse demographics in the developed world, and growth and inflation in the emerging world in our second Balentine Breakfast in July (http://bit.ly/hEhMij). The data flow from the emerging world is increasingly confirming this reality.
Why are corporate profits at a record high and yet economic growth and job growth are still stagnant?
The next few years may challenge one of the most dangerous tendencies we observe among the investing public: that is the profound “home bias” we here in the U.S. have when it comes to thinking about “Safe” asset classes. Investors may have to reach beyond the federal and and local municipality level to look for reliable yield, inflation protection and high probability of principal protection.
As the name implies, these are investments in global companies that demonstrate certain characteristics of quality. But what exactly is “quality?” And how is this different, or similar to, more traditional terms such as “growth” and “value” stocks?
“It’s great to say the outlook’s fine,” Adrian Cronje tells The Wall Street Journal, “but what are you doing with your cash?” Read the article here.
Balentine Chief Investment Officer Adrian Cronje tells The Wall Street Journal in its article “U.S. Stocks Pare Gains After Existing Home Sales Decline” that “the housing data today is confirmation of a recent trend in which data on the economy are starting to underperform expectations, which is a little worrying.” Read the full article “U.S. Stocks […]
Speaking of the Chinese currency to The Wall Street Journal, Balentine’s Adrian Cronje notes, “It’s too early to tell if this (potential currency revaluation) is a fundamental regime change. There is a lot of speculation about whether they are going to follow through on this.” Read the article here.