“The future’s so bright, I gotta wear shades."

The Markets

“The future’s so bright, I gotta wear shades.”

For the last several weeks investors have appeared to agree with the sentiment expressed in the 1980s song by Timbuk3. A high degree of investor optimism has helped push markets higher.  The trend continued last week as the National Association of Active Investment Managers’ weekly survey found that professional investors are as bullish as they have been since the survey began six years ago. That may be part of the reason that the Dow Jones Industrial Index moved to within one percent of its all-time high during Friday’s rally.

With markets hitting new highs, investors have to ask: Are stocks fully valued in general? According to noted economist Robert Shiller, stocks are somewhat pricey relative to earnings, but not as expensive as they have been in the past. The Standard & Poor's 500 Index recently traded at about 13 times expected earnings for 2013. It traded at 15.2 times expected earnings in October of 2007 and at 25.6 times in March of 2000. Forecasted or expected earnings reflect analysts’ estimates of companies’ earnings going forward. They are projections that help analysts evaluate companies’ potential and not facts.

While contrarians – individuals who invest against prevailing market trends – may argue that all of this optimism means it’s a good time to bet against equity markets, historically strong performance during January often has been followed by strong annual performance. There have been notable exceptions, of course, including 1987 and 1997.

The rest of the commentary can be found here.

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Best regards,

James T. Parks, CFP®, AEP, AIF
President and Wealth Advisor

Parks Wealth Management
216 East Ridgewood Avenue | 201.689.2020