An Interest(ing) Development

One of the key components to DCF is the discount rate employed in your formula. Cutting to the chase and using layman's terms, higher interest rates means future cash flows are worth less.

To be sure, the vast majority of investors have never even heard of DCF, let alone employ such analysis in their decision to invest in Tesla. But the big boys at Wall Street firms do. And when a market or a group of stocks has outperformed everything by a mile - becoming richly valued in the process - just about anything can be used to justify some selling/profit-taking.

Is this the end of the mega-cap COVID Winners trade? Frankly, I'm not sure. But it does make some sense to me that the high-fliers deserve to rest for a spell, at the very least.

The Bottom Line

From my seat, it appears that stocks have entered some sort of pullback, correction, or sloppy phase. Where the indices go in the near-term, of course, is anybody's guess. So far at least, the pullback in the major indices falls into the "garden variety" pullback category - you know, the type of thing that tends to occur several times a year, with or without a good reason. It's just the way the game is played.

I for one will be watching closely to see if the selling picks up steam in the near term. And since I recently created some dry powder in my more discretionarily managed portfolios, my plan is to continue to put money to work into weakness - something I started doing late last week.

Here's wishing you a great week! Now let's turn to our expanded weekly model update...

Weekly Model Review

Each week we do a deep dive into our key market indicators and models. The overall goal of this exercise is to (a) remove emotion from the investment process, (b) stay "in tune" with the primary market cycles, and (c) remain cognizant of the risk/reward environment.

The Big-Picture Market Models

We start with six of our favorite long-term market models. These models are designed to help determine the "state" of the overall market.

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The opinions and forecasts expressed herein are those of Mr. David Moenning and may not actually come to pass. Mr. Moenning's opinions and viewpoints regarding the future of the markets should ...

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