But if I knew how to manage my portfolio safer and smarter than most hedge fund managers, I could realistically grow my wealth.
Why is the technology sector appearing expensive?
Currently, the tech sector is trading at 20x its earnings. This is much lower than its 20-year average of 39.6x. However, the sector is trading at slightly above its ten-year average—19x.
Growth rates in the US tech sector (QQQ)(XLK)—including companies like Microsoft (MSFT)—have slowed down dramatically from the high levels it saw in the 1990s.
Stocks (SPY)(IVV) tend to remain undervalued or overvalued for a long time during crises and bubbles, respectively. The tech (QQQ)(XLK) bubble was a prime example of the latter.
For most tech companies, and tech investors, the world is a slower, less dynamic place than it was before the tech bubble burst in 2000. It’s also a less significant place.
Mega cap tech stocks (QQQ)—like Microsoft (MSFT)—had their growth spurts in the 1990s and 2000s. However, these companies have now matured and slowed down.
One measure for this is the VIX or CBOE Volatility Index (otherwise known as the fear gauge). The index tracks the implied volatility in S&P 500 options.
Sometimes terrible things happen, and it’s not exactly clear when they’re going to happen. So you just have to think: Is the market priced for perfection? Is there some cushion in prices if an exogenous event occurs out of the blue?
Many people are worried about Europe slowdown, so eurozone stock prices already reflect a fair amount of risk. But prices in the region still could be cheaper.
Oil is currently trading a little low given the current supply situation and inventory levels. Prices aren’t high enough to discount potential large events related to a Middle East crisis.
While US valuations currently look reasonable, they’re predicated on a U.S. economy growing at around 2% to 2.5%. The risk of slower growth is not priced into the market.
“What worries you the most?” “What keeps you up at night?” I get these questions a lot from investors looking for insight into what might cause the next market correction.
While I still expect that the yield on the U.S. 10-year Treasury note will rise modestly throughout the rest of this year and 2015, the backup in yields is likely to be a slow, modest climb characterized by volatility and back and forth movement.
Why? The reality is that while the U.S. economy continues to recover, short-term interest rates are likely to remain anchored at zero for the rest of 2014.
A key question on investors’ minds remains how long low rates, and the accompanying search for yield, are likely to continue.
Another strategy for bond investors to employ? Buy and hold. The higher yields and lower prices implied by a tightening environment can provide opportunities for investors just stepping into the bond market.
The Fed believes persistently low inflation and an appreciating dollar will impact gross domestic product (or GDP) growth in the coming quarters. A higher US dollar makes US goods less competitive in overseas markets.
According to the American Society of Civil Engineers, the US has to spend ~$3.6 trillion by 2020 to make needed infrastructure improvements. This should mean more municipal bonds (MUB) will be issued to help finance these projects.
The US has had to rein in government spending in the aftermath of the 2008 housing bust and financial crisis. The US also reached its debt ceiling in 2011. This led to standoffs in Congress about raising the ceiling.
Apple Inc. (AAPL) recently issued 2.8 billion euros in two tranches, its first foreign-currency debt sale. Apple found the lower borrowing costs in Europe advantageous. Demand for the issue was strong.
Policymakers are attempting to shrug off deflationary trends that have persisted in the Japanese economy for over two decades. The Bank of Japan is expected to continue investing for as long as inflation remains below its 2% target.