Can the recent pullback in stocks actually help sustain the bull market? Liz Ann Sonders and her team at Schwab believe this is the case. They offer an analysis of the current economy in the most recent Schwab Market Perspectives. Even though it’s been eight years since the start of the last financial crisis, many investors still find themselves holding cash positions that are too high to help them meet their goals. Russ Koesterich of BlackRock discusses the effect of their reluctance to invest in the markets on their retirement plans. If you’re an investor who carefully follows growth rates of world markets, you may have seen that stock returns seldom follow the growth of GDP. In fact, when measured over long periods of time, the correlation of countries’ inflation-adjusted per capita GDP growth and stock returns is negative. So where should investors focus? Jay Ritter answers the question for Alpha Architect.
Market Perspective: Realism Returns– After an October that was almost straight up for stocks, a dose of reality hit the market in November according to Liz Ann Sonders and her team at Schwab. The digestion of gains is healthy as it keeps investor sentiment in check, which should help to keep the long-term bull market intact. Read more…
The Enormous Long-Term Cost Of Holding Cash– Fifteen years after the bursting of the tech bubble and more than eight years after the advent of the last financial crisis, many investors are still being impacted by the memory of those traumatic events. As a result, a sizable portion of U.S. households are placing a disproportionate amount of their savings in cash. While this is understandable, and in the short term even prudent, it comes with an enormous cost. With cash yields likely to remain low for the foreseeable future, many families will likely struggle to fund an increasingly elongated retirement. Read more…
GDP Growth Doesn’t Predict Stock Returns– Investors are constantly analyzing and assessing the growth rates of various markets around the world. The key assumption behind this analysis is that knowledge of these growth rates enhances their ability to predict the future and expected returns. This assumption is empirically invalid. So, if not on growth, in which area should investors focus? As Ritter says quite succinctly: “current earnings yields.” Translated for non-finance geeks, this simply means price. And as any intelligent investor will tell you, the price you pay has everything to do with the returns you will receive. If an investor pays a high price for a given asset, they can expect low returns; if the same investor pays a low price for a given asset, they can expect high returns. Wesley R. Gray explains in this article. Read more…
John R. Day, Bill Ennis, Stephanie Davidson and Matt Heller