From Chief Investment Officer Tom Veale,
“It would appear from our Divergence Index that market participants are mostly in agreement about the market’s near-term direction. This short-term indicator shows a number a bit below its median value. We’re watching it as history shows it is somewhat fickle in its measure and changes quickly. (see attached histogram) Three of the Market Risk Indicator’s components are currently in their neutral territory. Only our Relative Valuation Index is a full standard deviation away from its median level. In summary of all these market measures, our Market Risk Indicator shows some hunting for the market’s bottom.
Historically it has been very difficult for the stock market to maintain high Price to Earnings ratios when interest rates are on the rise. We have been seeing average P/E values decline from 19 at the start of 2022 to its current level of 16.1. The S&P 500 reflects this decline in P/E. This occurred while short term interest rates rose from near zero to its current level of 3.14%/Yr. Future interest rate hikes will continue to put pressure on P/E ratios going forward. How far will the FED go with their normalizing of rates to fight inflation is as of yet unknown. In general, the higher the interest rates go, the lower Price/Earnings trends.
In the last month of so we’ve watched the markets bouncing with rather high daily index swings and no clear apparent trend. To us, this appears to be a sorting out of stocks after a long speculative period. Many of the positions held in SignalPoint’s Portfolio Strategies remain in their respective middle ground between “accumulate” and “distribute” targets. We are monitoring these for opportunities on both ends.”