Thoughts {08.08.18}

It is the dog days of summer now.  Out in Rhode Island where I am working this week it has been around 90 every day with high humidity and virtually no breeze.  Staying in a building that was built in probably the late 1800's means you are dealing with a stifling environment.  Fortunately the room we sleep in has AC.  The rest of the place though is sweltering.  People ask me when I'm out here if I really work.  The answer especially this week is a definite yes.  Not only am I extremely busy but the office I use while out here has air conditioning.  It's the only place to hide out during the day besides the beach!  With that being said I'll share a few observations that I've noted while sitting out here hiding from the sun.

Earnings estimates for the S&P 500 keep going up.  The forward four quarter estimate per this site is about 169.25.  You are starting to see numbers for the S&P 500 in the mid to high 170's for all of 2019.  If these numbers hold out then based on yesterdays close you see metrics something like this {Let's use a 176 number just for modeling purposes for all of 2019}.  Based on these numbers the forward PE on a rolling four quarters basis is about 16.90 and using that 176 number gives you a PE of about 16.25.  Now these numbers aren't cheap but they're also not stunningly overvalued.  I may be a bit cautious on stocks in the short term but it's hard for me to become overly bearish on a longer term basis when seeing earnings growth numbers like this.

Irrespective of my more cautious view in the near term the market keeps churning higher.  We're now approaching the highs set back in January and it will be interesting to see if we can burst through those levels and just keep climbing higher.  The market is very over bought right now so I'm wondering if there's enough gas in the tank to keep on chugging into new high realm. Markets will become more thinly traded the rest of this month as the August vacation season enters it's high season for the Wall Street crowd.  Stocks could be subject to hitting an air pocket or two based on the news and other events.  We'll see.  So far stocks are the world's fair as they just ground higher.  I'll detail next week a bit more of my shorter term concerns.

Horrific news out of Chicago this past weekend with over 70 shot in the city.  All anybody wants to ask me about home when I'm out here is how does it continue to happen and why don't we just pack up and leave.  It's hard to explain how so many of us that are from Chicago love it so much because the city has such well known problems. Maybe someday we'll be forced to move from the area if for no other reason than the city as well as the state of Illinois is broke.  I'm going to be unwilling at some point to foot the bill that I think may be coming down the pike.  With that being said, this recent editorial in the Chicago Tribune goes along way towards saying what many of us think about the city we call home.

*Long ETFs related to the S&P 500 in client and personal accounts.  Short S&P 500 in a personal account as part of a separate individual strategy.  

Back early next week.