I can’t remember the last time someone described the market as “fairly valued.” History shows us that markets of all types can remain over/under valued for long periods of time. The complexity of our economy and that of the world economy makes it difficult to determine a correct assessment of true fair value. The stochastic nature of markets combined with the behavioral biases of the investing public make reversions to the mean difficult and lengthy. Experts continue to tell us that markets are overvalued yet valuations continue to rise. Does this mean ignoring the warning signs of stretched valuations? Never, but heeding the pundits call for market corrections only because of conventional valuations would have been costly. Markets at some date will return to fair value, crossing over the fair value point and becoming undervalued, but like a stopped watch that’s right twice a day, it won’t remain that way very long. Investing is always like “skating away on the thin ice of a new day”. Always risky, but unless you hear the ice cracking keep skating and keep worrying.
The employment report on Friday was a mixed bag, but the headline number looked solid. Employers added 227,000 jobs in January. Wage growth however was softer than expected and more people looked for work. Government hiring was down. Wage growth is always at the top of the FED’s watch list as it continually sniffs for evidence of inflation. Wage growth also impacts corporate profits and on Friday the markets took notice. This week is a light week for economic reports but there are plenty of corporations reporting. Disney, Sysco, CVS, Coke, Yum Brands, Time Warner, and Alaska Air are worth tracking to see if and how much the consumer is spending their money.
Also on tap this week will be Salt Creek’s quarterly conference call. The call will begin at 10:00 a.m. CST on Tuesday, February 7th, and last approximately 30-40 minutes. Thank you for your continued support.