Author: Richard Moore
Covestor model: Market Comparables
As I anticipated last month, we did enjoy a rally in stock prices during June from an oversold condition created in May. I participated in that upward movement in stock prices but I continue to feel that conditions are not conducive to a sustainable strong stock market at this time.
The model that I use to allocate resources to stocks (available on my website, theastuteinvestor.com), uses earnings expectations for the S&P 500 index (SPX) as the most important component. Last month I commented on the fact that earnings estimates were no longer increasing and had established a flat trend.
As June progressed, earnings estimates were reduced further and are now in a well established downtrend. This has led me to move totally out of the market until such time as earnings expectations are more favorable or we have a meaningful decline in stock prices.
Other indicators that I evaluate such as sentiment, valuation and technical items are mixed but are overshadowed by the poor earnings picture. It will be very difficult for stock prices to make much headway while economic conditions weaken in Europe and uncertainty reigns in the US. I believe that capital preservation is the primary goal in this environment.