Tags: Michael Lewitt | stocks | bonds | investing

Strategist Michael Lewitt: Beware of Stock Declines in January

Strategist Michael Lewitt: Beware of Stock Declines in January

(Dreamstime)

By    |   Wednesday, 04 January 2017 01:15 PM

Stocks have been on a tear since Republican Donald Trump was elected U.S. president as investors look forward to a coming Golden Age of pro-business policies and billion-dollar spending on roads, bridges and airports.

But the S&P 500’s 6 percent gain to record highs since Nov. 8 is reason for caution this month because stocks are getting expensive and political realities are unlikely to live up to the campaign hype, warns Michael Lewitt, a fund manager at Third Friday Management LLC in Boca Raton, Florida.

“It is promising that the country will now be led by businessmen and generals instead of politicians and academics, but they still have a lot of work to do,” Lewitt writes in the January issue of his Credit Strategist newsletter. “Stock market bounces between a presidential election and inauguration day are normal.”

Stocks are getting overvalued, he says, citing valuation measures that show the S&P 500’s level is equal to 22 times corporate profits of the past 12 months. Stocks are priced at 18 times the estimate of future non-GAAP earnings – the highest in 15 years.

“Earnings need to rise significantly to justify these valuations,” Lewitt says. With companies taking on record debt to finance stock buybacks and dividend payments to shareholders, they are more vulnerable to a rise in interest rates and a stronger dollar, he says.

Investors who are hoping that Trump and the Republican-controlled Congress will lower taxes on capital gains may start selling stocks this month, Lewitt says. Other policy changes may more difficult to achieve.

“While Mr. Trump will no doubt alter the anti-business climate of the last eight years, the market is priced for a degree of perfection that is unachievable,” according to Lewitt. “Sentiment is by its nature irrational; cooler heads are likely to prevail after January 1, and the rally was already losing steam by Christmas.”

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Stocks have been on a tear since Republican Donald Trump was elected U.S. president as investors look forward to a coming Golden Age of a pro-business White House and billion-dollar spending on roads, bridges and airports.
Michael Lewitt, stocks, bonds, investing
311
2017-15-04
Wednesday, 04 January 2017 01:15 PM
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