The U.S. economy has slowed over the last few months, though its equity markets haven’t noticed. Despite nearly every broad market valuation metric currently above its long-term average–some uncomfortably so–equity markets continue to forge ahead.
For six months straight, we’ve watched the metaphorical kid in the candy store stuff his face; whether he merely gets a stomach ache or outright pukes, we do not know.
Such hastily achieved returns from already-pricy levels do not assure impending doom, rather, future returns are being compressed into the present. Equity markets will likely return mid-single digits at best over the next decade. That is more than can be said of fixed income securities.
The S&P 500 rose 3.8% during the month of March and 10.6% in the first quarter. Black Cypress returned 4.1% and 11.1%, respectively, for the month and quarter.
Housing remains a bright spot and the Federal Reserve is committed to providing ample liquidity for the foreseeable future. For now, that appears to be enough for market participants.
We can’t help but feel anxious when markets, stock and bond alike, make new all-time highs despite economic data turning decidedly soft. But feelings do not drive our actions. Data-driven processes do.
We remain invested in world-class companies that offer higher long-term returns and lower downside risk than broad equity markets.
This material contains the current opinions of the author but not necessarily those of Black Cypress and such opinions are subject to change without notice. This material is distributed for informational purposes only. Forecasts, estimates, and certain information contained herein are based upon proprietary research and should not be considered as investment advice or a recommendation of any particular security, strategy or investment product. Information contained herein has been obtained from sources believed to be reliable, but not guaranteed. No part of this article may be reproduced in any form, or referred to in any other publication, without proper reference. Past performance is not a guarantee and may not be a reliable indicator of future results. ©2012, Black Cypress Captial Management