Advertisement
Economic Forecasts

Additional Insight from Jim Stack

A special treat for beloved Facebook fans: Our bonus questions and answers from this top market prognosticator can help you gauge where stocks are headed.

We recently spoke with Jim Stack, president of InvesTech Research and editor of the newsletters InvesTech Research Market Analyst and InvesTech Portfolio Strategy. Stack has built a reputation as a top prognosticator. Seemingly clairvoyant at times, Stack called the beginning of the bear market in 2007 and the bottom in March 2009. In years of extreme market stress, such as in 2008, 2002 and 1987, Stack has shown an ability to protect his clients from disaster.

Advertisement - Article continues below

KIPLINGER'S: What signals might indicate that the bull market may be coming to an end?

STACK: Look for divergences in indexes that tend to lead the broader market. At market tops, those often include the Dow transportation average, which is economically sensitive, and the Dow Jones utility average, which is interest-rate-sensitive. Also look at the Russell 2000 index. If the Russell 2000 starts falling faster than the Dow industrials and the S&P 500, or if it fails to confirm a new high in those blue-chip indexes, then you’ve got good reason to move to a more defensive stance.

The dollar can also be a warning sign. If the dollar falls below its 2008 lows it’s not necessarily time to sell your stocks, but a weaker dollar is not a positive for the bull market’s longevity. Also keep an eye on the 30-year Treasury bond. If its yield climbs above 5%, it will be time to take profits in stocks and move to a more defensive stance.

Advertisement
Advertisement - Article continues below

What’s your sense of the stock market’s current valuation? Based on earnings for the S&P 500 over the last four quarters, the market’s price-earnings ratio is close to the long-term historical average of 17. So from a historical viewpoint, the market is close to fairly valued. But valuations in the market tend to move inversely to the yield you can get on cash-type investments. High interest rates tend to drive valuations lower. Low interest rates, which we have today, tend to push valuations higher. It’s not hard to find a lot of attractive companies if you compare the average dividend yield on many stocks, which is between 2% and 3%, with a money market fund, which yields almost nothing.

To return to the rest of the interview, see STOCK WATCH: Sell in May and Go Away?.

Follow Jennifer on Twitter

Advertisement

Most Popular

12 Tax Deadlines for July 15 (It's Not Just the Due Date for Your Tax Return)
tax deadline

12 Tax Deadlines for July 15 (It's Not Just the Due Date for Your Tax Return)

Between due dates for IRA or HSA contributions, paying estimated taxes and other deadlines, there's more to do by July 15 than just filing your federa…
July 10, 2020
65 Best Dividend Stocks You Can Count On
stocks

65 Best Dividend Stocks You Can Count On

These 65 Dividend Aristocrats are an elite group of dividend stocks that have reliably increased their annual payouts every year for at least a quarte…
July 8, 2020
Know Why Your Credit Score Changes: 9 Money Moves to Consider
credit & debt

Know Why Your Credit Score Changes: 9 Money Moves to Consider

Your credit score is a key indicator of your financial well-being and of the risk you pose to lenders. How good is yours?
July 10, 2020

Recommended

Travel Planning in the Time of Coronavirus
Travel

Travel Planning in the Time of Coronavirus

Insurance may not cover canceled vacations, but airlines and hotels may be flexible.
June 11, 2020
13 Things That May Soon Disappear Forever (The Pandemic Edition)
business

13 Things That May Soon Disappear Forever (The Pandemic Edition)

Emerging technologies (and now the COVID-19 pandemic) are putting an end to these familiar items and practices.
June 9, 2020
Don't Let the Drama Surrounding PPP Distract You from Running Your Business
business

Don't Let the Drama Surrounding PPP Distract You from Running Your Business

If you're so wrapped up in worry about your Paycheck Protection Program loan not being forgiven, think about the worst-case scenario. It might not be …
June 5, 2020
Another Epidemic to Worry About: Identity Theft
business

Another Epidemic to Worry About: Identity Theft

Fraud losses grew in 2019 and are likely to increase in 2020.
June 5, 2020