A conundrum!
BY CARTER E. ANTHONY, CFA
A “conundrum” from Merriam-Webster is an intricate and difficult problem to solve. From Cambridge, it is a problem difficult with which to deal. From the Collins Dictionary, a conundrum is a problem or puzzle difficult or impossible to solve.
After two consecutive years of 20%+ stock market returns. it is obvious investors are in a “conundrum” as to how to invest.
Two consecutive years of 20%+ returns have not occurred in the last quarter century. Never fear, Wall Street is there with information to solve our conundrum.
Oct. 22, 2024—Wall Street Journal. Simple Economic Explanations Keep Breaking Down. If the Fed raises interest rates from zero to 5% in a little more than a year, a recession should ensue and stock market returns should be tempered.
The economy hasn’t been affected and the stock market has returned back-to-back 20%+ returns.
Oct. 24, 2024—Goldman Sachs Sees a Lost Decade for Stocks. Goldman predicts one of the longest stretches of poor returns since the 1930s.
Typically, over the long term, stocks return an 11% annual average return. The Magnificent Seven tech stocks driving the market cannot be expected to maintain their high levels of revenue and earnings long term.
Nov. 11, 2024—Dr. Edward Yardeni of Yardeni Research has lifted his target for the S&P 500 to 10,000 from 8,000 for December 31, 2029.
His report came soon after Donald Trump was elected president and the stock market rallied. “The “animal spirits are back”, Yardeni said. Corporate and individual tax rates are going to be cut and regulations are going to be pared.
Nov. 26, 2024—The stock market indicators used by Mark Hulbert of Hulbert Financial Digest show the market is more richly valued than any other time in history.
Hulbert predicts mediocre equity returns in the 3%-4% range over the next 10 years.
Dec. 17, 2024—Barron’s emphasizes market contradictions on the 18th hole of what has been a good year. The Nasdaq Composite surged to a record high while the Dow experienced an 8-day losing streak.
At the same time, the S&P 500 rose but its equal weighting index fell 10 of 11 days. The majority of stocks are struggling.
In an ironic inclusion (DEI?), Nvidia was added to the Dow 30 to make it a sexy index. Afterward, Nvidia fell into correction territory.
Dec. 28, 2024—Rather than make predictions, Forbes endeavors to find some reality good for investors’ own analysis.
With the current ten-year UST bond yield in the 4 ½%-5% range, GDP expected to be in the 2 ½%-3% range and inflation at 2 ½%, bonds make sense for principal preservation and diversification.
Today’s stock market valuations are outsized but 2025 earnings should grow to meet PE multiples. Healthcare and consumer staples are attractive.
Probably the best-known financial news commentator is Jim Cramer of CNBC. Some years ago, an independent study found that Cramer’s investment recommendations had produced a zero-sum game. While entertaining, the only person Cramer has made any money for is himself.
It is comforting to know that according to the Wall Street Journal, Wall Street and other financial news commentators are seldom accurate with their projections.
The conundrum continues! Invest wisely and safely. Safely is the more important.
“It would be so nice if something made sense for a change.” Alice in Wonderland
