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In the past week, market pundits have been raising their concerns about the current valuations sported by stock market indices. BlackRock (BLK), Merrill Lynch (BAC), Goldman Sachs (GS), Morgan Stanley (MS) and one out of every three market participants sense stocks are overvalued. Fear and greed, as measured by CNN Money, is reading 39 out of 100, meaning that caution is foremost in the mind of investors. In fact, according to ICI equity and bond fund data, money from domestic investors has been moving out of equities and into bonds. Domestic equity funds have seen continuous outflows in excess of $100 billion thus far in 2017, while foreign equity funds have seen inflows of $50 billion. Fixed income has seen constant inflows exceeding $300 billion, $275 billion in taxable bonds and $25 billion in municipal tax free funds.
Many are saying that the Trump rally is getting long in the tooth, and that volatility and falling stock prices are coming next. With all the rampant trepidation, it is a wonder that stocks haven’t already begun their expected selloff. However, none of this doom and gloom scenario has happened yet. As earning season gets underway, stock prices seem to have considerable support from favorable expectations. If corporate earnings meet street estimates and grow year-over-year by 9.2%, stocks’ behavior may prove to be far more tame.
Which companies, sectors and industries are leading the market this year? Consumer Discretionary has been the darling of this eight-year bull market, joined by the Technology sector, the defensive duo of staples and Health Care, and Consumer Services. Each of these segments has been instrumental in contributing to the outstanding performance of the S&P 500, since the bull began in March 2009. For those of us living in the digital age, there has been and looks to be a new world order. The S&P 500 comprises 500 of the best companies in the world. The index is replete with old line industrial stalwarts and up and comers alike, but the performance facts suggest that there is a new world order. The industry that has significantly outdone the S&P 500 has been the Dow Jones Internet Index. This index has posted a 600% gain since the start of the bull market, virtually doubling that of the S&P 500. It is an astonishing return, considering the high valuations associated with the group during this time frame.
Is it true that no one can stay on top forever and what goes up – must come down? There have not been any unique developments in the Internet of Things World this year. Yet the results from ten of the largest public companies in internetland show they are doing it again, leading the market averages and how!