The Income Channel

2018 Five-Year Investing Trends

Here’s what you need to know about the forces that we believe will shape the economic and market landscape during the next five years. We share six key themes we see emerging across the global markets and economy, and offer our outlook for equity, fixed income and real asset classes.

Rebalance or Rush Hour?

Embracing a disciplined approach to rebalancing can lead to better long-term investment outcomes. Overcoming the natural tendency to wait-and-see before repositioning our portfolios can be a difficult, but worthy, goal for investors to pursue. Advisors can help investors surmount this and other behavioral hurdles by adopting a systematic rebalancing approach that effectively institutionalizes contrarian investment behavior.

Quarterly Letter

Despite another interest rate hike in June by the Federal Reserve that raised the target federal funds range to 1.75-2.00%, along with plenty of increased tariff talk and (some) implementation by the Trump administration, the investment world was relatively calm in the second quarter of 2018.

Charts for the beach - 2018

Don’t leave home without your summer essentials: sunglasses, sunscreen, towel and RBA’s Charts for the beach.

June Jobs Report: 157K New Jobs, Unemployment Rate at 3.9%, Worse Than Forecast

This morning's employment report for July showed a 157K increase in total nonfarm payrolls, which was worse than forecasts. The unemployment rate decreased to 3.9%. The Investing.com consensus was for 193K new jobs and the unemployment rate to drop to 3.9%.

The Latest Look at the Total Return Roller Coaster

Here's an interesting set of charts that will especially resonate with those of us who follow economic and market cycles. Imagine that five years ago you invested $10,000 in the S&P 500. How much would it be worth today, with dividends reinvested but adjusted for inflation? The purchasing power of your investment has increased to $19,357 for an annualized real return of 13.28%.

S&P 500 ETFs

The S&P 500 index is arguably the most well-known worldwide. It is based on the market cap of the 500 largest companies in the U.S. The first-ever ETF, introduced in 1989, hoped to mimic the index, but was short-lived due to a lawsuit. Several S&P 500 ETFs have been brought to market since, and we show their performance, as well as the tracking error relative to the S&P 500 Total Return Index (which assumes reinvestment of dividends).

The S&P 500, Dow and Nasdaq Since Their 2000 Highs

This update is in response to a standing request for real (inflation-adjusted) charts of the S&P 500, Dow 30, and Nasdaq Composite. Here are two overlays — one with the nominal price, excluding dividends, and the other with the price adjusted for inflation based on the Consumer Price Index for Urban Consumers (which is usually just referred to as the CPI).

Questions I'd be Asking If I Owned Tesla Stock

If I were long in Tesla’s shares I’d be asking certain questions. After all, you’re paying $50 billion for a company that trades completely on the spoils of future dreams.

Market Remains Overvalued

Here is a summary of the four market valuation indicators we update on a monthly basis.

  • The Crestmont Research P/E Ratio
  • The cyclical P/E ratio using the trailing 10-year earnings as the divisor
  • The Q Ratio, which is the total price of the market divided by its replacement cost
  • The relationship of the S&P Composite price to a regression trendline

Market Valuation, Inflation and Treasury Yields: Clues from the Past

Our monthly market valuation updates have long had the same conclusion: US stock indexes are significantly overvalued, which suggests cautious expectations on investment returns. In a "normal" market environment -- one with conventional business cycles, Federal Reserve policy, interest rates and inflation -- current valuation levels would be a serious concern.

But these are different times.

Market Cap to GDP: An Updated Look at the Buffett Valuation Indicator

With the latest July close data and Q2 GDP Advance Estimate, we now have an updated look at the popular "Buffett Indicator" -- the ratio of corporate equities to GDP. The current reading is 129.16%, down from 132.7% the previous quarter.

Is the Stock Market Cheap?

Here is the latest update of a popular market valuation method using the most recent Standard & Poor's "as reported" earnings and earnings estimates and the index monthly average of daily closes for the past month.

Fed Stands Pat But Gets Ready to Bid Adieu to Meetings Without Pressers

The Fed acted as expected by not acting on interest rates; and although there was no associated press conference, the statement had a few nuggets of note.

Cutting through the Noise: Trump, Trade and Twitter

In 2018, President Trump’s tweets on international trade have led to bouts of market volatility and concerns of a global economic slowdown. Against this backdrop, Franklin Templeton Multi-Asset Solutions’ Matthias Hoppe explains why he thinks economic fundamentals will determine the fate of the global economy more than Trump’s words will.