Cash in the Bank, but What to Buy?

Posted on May 8, 2015 | Stock Superstars Report

While we don’t generally talk about market rumors (otherwise we would have time to talk about nothing else!), when one of the SSR portfolio’s holdings is the subject of speculation and it moves the share price significantly, we realize that you probably have questions.

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Valuations Are Higher, but So Are Margins

Posted on May 7, 2015 | Investor Update

Investor-Update

Median price-earnings and price-to-sales ratios are currently higher now than they were near the height of the last two bull markets. Though this may seemingly be a reason for caution, there are underlying factors to consider before making a judgment about their significance.

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AAII Sentiment Survey: Optimism Falls to a Two-Year Low

Posted on May 7, 2015 | AAII Survey

Optimism fell to a two-year low as neutral sentiment stayed above 45% for a fifth consecutive week in the latest AAII Sentiment Survey. Pessimism rose to a one-month high.

Bullish sentiment, expectations that stock prices will rise over the next six months, fell 3.8 percentage points to 27.1%. This is the lowest amount of pessimism recorded by our survey since April 18, 2013 (26.8%). The drop puts optimism below its historical average of 39.0% for a ninth consecutive week, the longest such streak since an 11-week stretch between March 20 and May 29, 2014.

Neutral sentiment, expectations that stock prices will stay essentially unchanged over the next six months, declined 1.1 percentage points to 46.1%. The increase keeps neutral sentiment above 45% for a fifth consecutive week, the longest such streak since a six-week stretch between May 13 and June 17, 1988. It also keeps neutral sentiment above its historical average of 31.0% for the 18th consecutive week.

Bearish sentiment, expectations that stock prices will fall over the next six months, jumped 4.9 percentage points to 26.8%. Pessimism was last higher on April 2, 2015. Nonetheless, this is the 15th week this year with a bearish sentiment reading below its historical average of 30.0%.

Bullish sentiment is now at an unusually low level, while neutral sentiment continues to stay at an unusually high level. Historically, such readings—both unusually low bullish sentiment and unusually high neutral sentiment—have been correlated with better-than-average market performance over the following six- and 12-month periods. (See Analyzing the AAII Sentiment Survey Without Hindsight in the June 2014 AAII Journal for more information.) There is no guarantee history will repeat itself in the future, however.

Causing some AAII members to be cautious or pessimistic are prevailing valuations, recent price volatility, geopolitical events, the pace of economic growth, the impact of the stronger dollar on earnings growth and worries that a notable decline in stock prices could occur. Keeping other AAII members encouraged are the ongoing bull market, sustained economic expansion, earnings growth and still-accommodative monetary policy.

This week’s AAII Sentiment Survey results:

  • Bullish: 27.1%, down 3.8 percentage points
  • Neutral: 46.1%, down 1.1 percentage points
  • Bearish: 26.8%, up 4.9 percentage points

Historical averages:

  • Bullish: 39.0%
  • Neutral: 31.0%
  • Bearish: 30.0%

The AAII Sentiment Survey has been conducted weekly since July 1987 and asks AAII members whether they think stock prices will rise, remain essentially flat or fall over the next six months. The survey period runs from Thursday (12:01 a.m.) to Wednesday (11:59 p.m.). The survey and its results are available online at: http://www.aaii.com/sentimentsurvey.



Members Cautious About High Stock Valuations

Posted on May 7, 2015 | AAII Survey

This week’s Sentiment Survey special question asked AAII members what their comfort level with current stock valuations is. (Most of the responses were given before Fed Chair Janet Yellen described stock valuations as “generally being quite high” yesterday.) About three out of every 10 respondents (31%) said valuations are high or that they are uncomfortable with how stocks are currently priced. An additional 16% of respondents described themselves as being cautious or are somewhat uncomfortable with current valuations or otherwise said that stocks are somewhat expensive. Close to 13% described stocks as currently either being fairly or fully valued. Just under 14% of respondents say they are comfortable with current valuations.

Here is a sampling of the responses:

  • “I feel that stocks are somewhat overvalued, but I don’t see a minor bear market for at least six months.”
  • “I think valuations are on the high end, but maybe not at their highs.”
  • “There are many stocks whose price-earnings ratios fit in my comfort zone.”
  • “Valuations are high, but there is nowhere else to get any kind of return.”
  • “The recent economic measurements do not support current stock market prices.”
  • “Stock prices are inflated because capital gains and dividends are the only game in town.”


Sell OF THE WEEK 5/6/2015

Posted on May 6, 2015 | Podcast

AAII Journal Editor Charles Rotblut explains to Chuck Jaffe of MarketWatch why Sandisk (SNDK) is his “Sell of the Week” on the MoneyLife Radio Program. MoneyLife is a daily personal finance show that sorts through the financial clutter to bring you the information you need to lead the MoneyLife.

Audio url: Sell of the week





AAII WEEKLY FEATURES 5/5/2015

Posted on May 5, 2015 | Weekly Features

Investor-Update

This week’s AAII Weekly Features has been updated.
View this week’s Top AAII Articles, Featured Stock Screen and Member Question.

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BUY OF THE WEEK 5/5/2015

Posted on May 5, 2015 | Podcast

AAII Journal Editor Charles Rotblut explains to Chuck Jaffe of MarketWatch why Viacom (VIA) is his “Buy of the Week” on the MoneyLife Radio Program. MoneyLife is a daily personal finance show that sorts through the financial clutter to bring you the information you need to lead the MoneyLife.

Audio url: Buy of the week




Cash Allocations Hit Five-Month High

Posted on May 4, 2015 | AAII Survey

Cash allocations rose to their highest level of the year last month, according to the April AAII Asset Allocation Survey. Individual investors’ allocations to stock and stock funds ticked down slightly from March’s multi-year high. Bond and bond fund allocations also declined.

Stock and stock fund allocations fell to 67.9%, down 0.7 percentage points. In March, equity allocations had been at their highest level since June 2007. Even with April’s decline, stock and stock fund allocations remain above their historical average of 60%, which has now continued for 25 consecutive months.

Bond and bond fund allocations decreased 0.3% to 16.2%. Despite the decline, April is the 11th consecutive month with fixed-income allocations at or above their historical average of 16%.

Cash allocations rose 1%, to 15.9%. This was the largest allocation to cash since November 2014 (16.8%). April was the 42nd consecutive month with cash allocations below their historical average of 24%.

The five-month high in cash allocation occurred as neutral sentiment (as measured by the weekly AAII Sentiment Survey) has stayed at or above 45% for four consecutive weeks. This is the longest such streak since 1989. Despite the higher allocation to cash, equity allocations remain above average as the major indexes remain near their record highs and bond yields are at low levels.

April AAII Asset Allocation Survey results:

  • Stocks and Stock Funds: 67.9%, down 0.7 percentage points
  • Bond and Bond Funds: 16.2%, down 0.3 percentage points
  • Cash: 15.9%, up 1.0 percentage points

April AAII Asset Allocation Details:

  • Stocks: 32.2%, down 0.6 percentage points
  • Stock Funds: 35.7%, down 0.1 percentage point
  • Bonds: 3.3%, down 0.6 percentage points
  • Bond Funds: 12.8%, up 0.3 percentage points

Historical Averages:

  • Stocks/Stock Funds: 60%
  • Bonds/Bond Funds: 16%
  • Cash: 24%

*The numbers are rounded and may not add up to 100%.

The AAII Asset Allocation Survey has been conducted monthly since November 1987 and asks AAII members what percentage of their portfolios are allocated to stocks, stock funds, bonds, bond funds and cash. The survey and its results are available online at: http://www.aaii.com/investor-surveys.



Moving on Up, Plus Changes to the Portfolio

Posted on May 1, 2015 | Stock Superstars Report

The May SSR Monthly Report is now available at the SSR website. There are 2 new portfolio deletions and 2 new portfolio additions to announce.

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Don’t Sell in May and Don’t Go Away

Posted on May 1, 2015 | Dividend Investing

This week was full of economic reports and earnings releases. Now we wait to see if investors will follow the adage “sell in May and go away.” U.S. investors typically sell their stocks in May and stay away from the market until the end of October. S&P Capital IQ’s U.S. equity strategist, Sam Stovall, blames the seasonal weakness during the May-October period on reduced capital inflows, vacations, earnings reality and mutual funds’ fiscal-year-end window-dressing.

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