{"id":45016,"date":"2013-12-05T14:45:20","date_gmt":"2013-12-05T19:45:20","guid":{"rendered":"http:\/\/countingpips.com\/forex-news\/?p=45016"},"modified":"2013-12-05T09:46:47","modified_gmt":"2013-12-05T14:46:47","slug":"phone-call-aunt-told-stock-market","status":"publish","type":"post","link":"https:\/\/www.investmacro.com\/forex-news\/2013\/12\/05\/phone-call-aunt-told-stock-market\/","title":{"rendered":"What a Phone Call from My Aunt Told Me About the Stock Market"},"content":{"rendered":"

By Moe Zulfiqar<\/a> for Daily Gains Letter<\/a><\/p>\n

\"PhoneA few days back, I got a call from my aunt, whom I haven\u2019t spoken to in a while. It was shocking to me\u2014no, not her calling, but rather what she asked me. Before I go into any detail, here\u2019s some background information: as an investor, my aunt has a little experience with the stock market<\/a>, but gave up because it didn\u2019t suit her low risk tolerance.<\/p>\n

\u201cI have been saving money for some time now; it\u2019s been sitting in my bank account and earning next to nothing,\u201d she said to me. She heard on the news that the stock market in the U.S. is going higher and that the S&P 500 has reached its all-time high\u2014she wanted to know what I thought she should buy. \u201cI think it\u2019s about time I take some risk,\u201d she added.<\/p>\n

My aunt hasn\u2019t bought stocks in a while; in fact, she has missed out on all the gains made since the stock markets bottomed in 2009.<\/p>\n

What does this tell me?<\/p>\n

I find this a little scary, as should anyone who has been following the stock markets for a while. What my aunt said makes me skeptical; it shows that the notion of missing out is emerging. In the past, we have seen the stock markets reach their all-time highs, which gave investors the feeling they were missing out on gains. They bought, the key stock indices<\/a> increased a little, and then the sell-off occurred; they got caught in it and lost a significant amount of their portfolio. Historically speaking, there are many examples of this.<\/p>\n

As this is happening, I see the fundamentals deteriorating.<\/p>\n

To assess the stock market\u2019s health, one factor I look at is the \u201csurprise rate\u201d of corporate earnings<\/a>\u2014namely, how much better profits are compared to analysts\u2019 estimates. The higher the surprise rate, the better the move in the stock market is going to be.<\/p>\n

Unfortunately, for the past few quarters, the surprise rate of corporate earnings has not been impressive at all. For example, in the third quarter of this year, the earnings surprise rate for S&P 500 companies was 1.7%. Over the last four years, this rate averages out to be 6.5%. If the corporate earnings surprise rate of the S&P 500 companies in the fourth quarter remains the same, then it would be the lowest since the fourth quarter of 2008. (Source: \u201cEarnings Insight,\u201d FactSet web site, November 29, 2013.)<\/p>\n

Other factors, such as the margin debt (i.e., stocks purchased with borrowed money), continue to prevail. For example, the margin debt on the New York Stock Exchange (NYSE) stands at $412 billion. This is the highest it has ever been. When the margin debt reached its highest in the past, we saw sell-offs on the stock market. (Source: \u201cSecurities market credit ($ in mils.) > 2010 \u2013 current,\u201d NYSE Technologies Market Data web site, last accessed December 3, 2013.)<\/p>\n

As all this happens, I continue to watch the stock market with skepticism. For now, the irrationality may continue and key stock indices may edge higher, but if the fundamentals don\u2019t improve, reality will start to hit, which could cause a deep market sell-off. For now, investors like my aunt can safely profit from the stock market going higher through exchange-traded funds (ETFs) like the SPDR S&P 500 (NYSEArca\/SPY).<\/p>\n

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See original article: http:\/\/www.dailygainsletter.com\/wealth-creation-2\/what-a-phone-call-from-my-aunt-told-me-about-the-stock-market\/2171\/<\/a><\/p>\n

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By Moe Zulfiqar for Daily Gains Letter A few days back, I got a call from my aunt, whom I haven\u2019t spoken to in a while. It was shocking to me\u2014no, not her calling, but rather what she asked me. Before I go into any detail, here\u2019s some background information: as an investor, my aunt … <\/p>\n

Continue reading “What a Phone Call from My Aunt Told Me About the Stock Market”<\/span><\/a><\/p>\n","protected":false},"author":1,"featured_media":0,"comment_status":"closed","ping_status":"closed","sticky":false,"template":"","format":"standard","meta":{"footnotes":""},"categories":[],"tags":[],"class_list":["post-45016","post","type-post","status-publish","format-standard","hentry"],"_links":{"self":[{"href":"https:\/\/www.investmacro.com\/forex-news\/wp-json\/wp\/v2\/posts\/45016","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/www.investmacro.com\/forex-news\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/www.investmacro.com\/forex-news\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/www.investmacro.com\/forex-news\/wp-json\/wp\/v2\/users\/1"}],"replies":[{"embeddable":true,"href":"https:\/\/www.investmacro.com\/forex-news\/wp-json\/wp\/v2\/comments?post=45016"}],"version-history":[{"count":0,"href":"https:\/\/www.investmacro.com\/forex-news\/wp-json\/wp\/v2\/posts\/45016\/revisions"}],"wp:attachment":[{"href":"https:\/\/www.investmacro.com\/forex-news\/wp-json\/wp\/v2\/media?parent=45016"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/www.investmacro.com\/forex-news\/wp-json\/wp\/v2\/categories?post=45016"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/www.investmacro.com\/forex-news\/wp-json\/wp\/v2\/tags?post=45016"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}