With a few days left for tax selling in 2016, it’s fair to ask if the other underperforming stocks in the Lifelong Income Portfolio are worth unloading. Here’s why we’re sticking with each and what makes them likely to go from dogs to darlings in 2017.
President-elect Donald Trump’s plans for a massive fiscal stimulus via tax cuts and infrastructure spending should extend and perhaps accelerate a lackluster economic recovery that had started to peter out. With the economic outlook improving and inflationary pressure on the rise, this stimulus could give the Federal Reserve the leeway to hike interest rates at a faster pace than previously expected.
Although the US economy has gathered steam in the third quarter, gross domestic product still grew at an annualized pace of less than 1 percent in the first half of the year. Meanwhile, the S&P 500 trades at 20.5 times earnings—toward the top of its historical range. Stay hedged, my friends.
Divided-paying equities of all stripes have rallied hard since the Federal Reserve backed down from its plan to hike interest rates this year, propelling many of our favorite names to frothy valuations. We highlight a strategy for a challenging environment where rates remain low, and valuation multiples and economic uncertainty remain elevated.
An extended period of extraordinarily accommodative monetary policy has distorted asset prices, resulting in some curious (and concerning) dislocations. The S&P 500 trades at historically elevated valuations usually seen during periods of robust economic growth, while some of Europe’s strongest sovereign credits sport negative yields.
The US economy continues to grow at a lackluster pace, first-quarter earnings have disappointed and the S&P 500 trades at stretched valuations. Although none of these factors preclude additional upside in US equities over the near term, we stand by our cautious outlook for the broader market and prefer to focus on defense.
Recent weakness in global equity markets reflects the increasing risk of recession and growing realization that central banks’ ability to promote sustainable economic expansion through monetary policy has waned. Estimates from Wall Street’s hive mind have yet to reflect these realities.
DISCLAIMER: Capitalist Times, LLC is a publisher of financial news and opinions and NOT a securities broker/dealer or an investment advisor. You are responsible for your own investment decisions. All information contained in our newsletters or on our website(s) should be independently verified with the companies mentioned, and readers should always conduct their own research and due diligence and consider obtaining professional advice before making any investment decision. As a condition to accessing Capitalist Times materials and websites, you agree to our Terms and Conditions of Use, available here including without limitation all disclaimers of warranties and limitations on liability contained therein. Owners, employees and writers may hold positions in the securities that are discussed in our newsletters or on our website.