Looking For Value In A Bull Market

We are 8.5 years into the current bull market, so every now and then, somebody raises a red flag, and for a few days we are treated to reports about the possibilities of the next recession that could usher in another bear market. But that just doesn’t seem to be happening.    

For one thing, the unemployment rate is at a 16-year low. For another, personal income and personal disposable income are both on the rise according to the Bureau of Economic Analysis. Rising prices, especially for food and energy did however result in a 0.1% decline in real income in August.

The Michigan Consumer Confidence Index (MCCI) suffered a slight setback in September due to concerns about the economy in the wake of hurricanes Harvey and Irma, dropping from 97.6 in August to a still-high 95.3. "Renewed gains in incomes as well as rising home and equity values have acted to counterbalance the negative impacts from the hurricanes," Richard Curtin, chief economist for the Surveys of Consumers, said in a statement.

The housing market is in a multi-year expansion, partly because of the growing population and partly because millennials are finally settling down. The production side hasn’t been able to keep up, resulting in tight inventory and high prices. Hurricanes Harvey and Irma just made matters worse, further pressuring labor and materials supply and making production that much more difficult. While these factors made for a significantly weaker September, PWC principal Scott Volling expects a flatter market here on out with a rebound in the spring 2018 selling season.

As far as industrial production indicators are concerned, the ISM report has PMI, new orders and production indexes at 60.8%, 64.6% and 62.2%, all of which expanded from August to September. A contraction is not normally indicated until the PMI falls under 50%.

Why Value Investing Makes Sense Now

Value investing presupposes that there are companies out there that are capable of better and also taking the necessary steps to get there. So the idea is to build position in these stocks before the rest of the market does, thereby gaining the most from any subsequent upside. Naturally, the strategy is not for the rookie, but folks who have done the necessary research to identify these companies. The higher profits and ability to absorb volatility are the rewards.

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