Is the S&P500 due a correction anytime soon?

[TheMotorcycleBoy]

After listening to several of you here, I'm toying with the idea of purchasing a couple of standalone US equities. I'm not 100% sure which but I've looked at several and they and the S&P500 seem to be upwardly mobile at present.

Although I'm obviously still very green in the investment game, and completely green in US investments, and despite being mindful of trying not to time the market; I am stilll of the view that I should perhaps wait till the autumn and still if the prices are pulling back slightly.

Alas I've been googling (i.e. with strings containing "S&P500" and "correction" etc.) and seeing several of the "pundits" making similar predictions e.g.

https://www.cnbc.com/2019/07/29/morgan- ... onths.html
https://www.cnbc.com/2019/07/25/investi ... nings.html
https://www.marketwatch.com/story/sp-50 ... 2019-07-29

So what I'm reading is that slowing growth from China, and lower earnings forecasts, along with a future fed rate cut already being "priced in" mean that it is quite possible for a correction to occur in the next few months.

Accepting the absence of crystal balls round here, I wondered if any Lemon Fools had any views on this.

thanks Matt

[odysseus2000]

The S&P corrects small something like 3-4 times a year and much bigger on timescales of very approximately decades, say 2000 and 2008,

In the last 12 months there were corrections in October, December and May. Buying near the lows gave opportunities for profit, but you had to know when the lows were finishing and have the courage to buy when many were saying things are getting bad and also the skill to sell otherwise buying well in October and making profits would have seen them taken in December.

I have no idea when things will happen, but the odds of the S&P selling off and providing a better buying opportunity sometime in the future is high, but it could be from higher level.

Folk with the patience to wait and then enter slowly often validate the Buffett thesis that the stock market exists to take money from the impatient and give it to the patient, but the fact that there are not lots of stock market millionaires indicates that most of us are not good at doing this. It is also consistent with the thesis that most market commentators and talking heads are clueless.

Regards,

[SalvorHardin]

Folk with the patience to wait and then enter slowly often validate the Buffett thesis that the stock market exists to take money from the impatient and give it to the patient, but the fact that there are not lots of stock market millionaires indicates that most of us are not good at doing this. It is also consistent with the thesis that most market commentators and talking heads are clueless.

I'm one who is my four largest shareholdings are American and I haven't a clue about the general direction of the S&P500. I hardly ever do.

Now the economy, that's a different thing altogether. The railroads (my favourite indicator) are saying that things are pretty decent. Looking at figures rather than the headlines things look pretty good. Doesn't mean that this will be reflected in share prices though. Headlines are all too often spun for political purposes.

I stick to those sectors of the market where I'm happy with making a forecast for the company's business for years to come.

Disney looks pretty decent on a PE of 16.3 even after its near-40% rise this year

[TheMotorcycleBoy]

Disney looks pretty decent on a PE of 16.3 even after its near-40% rise this year

How did you guess?!!

That's one of my main areas of research. Their numbers have I've looked at do look very good.

[TheMotorcycleBoy]

The S&P corrects small something like 3-4 times a year and much bigger on timescales of very approximately decades, say 2000 and 2008,

In the last 12 months there were corrections in October, December and May. Buying near the lows gave opportunities for profit, but you had to know when the lows were finishing and have the courage to buy when many were saying things are getting bad and also the skill to sell otherwise buying well in October and making profits would have seen them taken in December.

I have no idea when things will happen, but the odds of the S&P selling off and providing a better buying opportunity sometime in the future is high, but it could be from higher level.

Folk with the patience to wait and then enter slowly often validate the Buffett thesis that the stock market exists to take money from the impatient and give it to the patient, but the fact that there are not lots of stock market millionaires indicates that most of us are not good at doing this. It is also consistent with the thesis that most market commentators and talking heads are clueless.

Regards,

Thanks Ody,

All good stuff.

Matt

[fca2019]

Yes that seems likely. I'm no expert either, but in bull markets investors chase momentum stocks to ride gains.

US stock market article July'19: "31 stocks with a market capitalization over $2 billion already have doubled or better just this year. Many more trade at sales multiples equivalent to earnings multiples for quality companies."

I've thought of getting an S&P 500 tracker but held off for this reason.

[SalvorHardin]

Disney looks pretty decent on a PE of 16.3 even after its near-40% rise this year

How did you guess?!!

That's one of my main areas of research. Their numbers have I've looked at do look very good.

Great minds think alike

Seriously though Disney has a lot going for it. Its share price hadn't done much for three years, but the streaming announcement in April turbo-charged its share price (up 24% since then).

The negatives. Disney's network and cable TV interests, particularly ESPN, are going to come under further pressure from the move towards streaming and breaking the bundling of cable TV channels. Profits could well fall over the next few years thanks to the pressure on its TV interests, whilst earnings from the movie business are rather volatile. Getting streaming established is going to be expensive. Piracy of programming.

The pluses. Content, Content, Content. Disney has more content than anyone else, especially after its acquisition of Fox, with many world-famous brands and is an expert at monetising it across its many businesses. Netflix's recent deals to keep "Friends" and "The Office" demonstrates that there's plenty of value in old content. Disney has tremendous synergies where its content drives traffic to its theme parks and to a lesser extent its cruise liners (the closest competitor in this area, Universal Studios (owned by Comcast) doesn't have anything like the same synergies).

Also the move into streaming has caused the market to re-rate Disney's shares, giving it a little bit of the feel of a "tech stock". Some of the gloss that has recently come off Netflix has ended up on Disney. I got into Disney through owning Marvel shares for some years before Disney bought it; I've never come across a company that's as good as Disney when it comes to integrating its acquisitions and delivering the synergies that so many takeovers promise but most fail to provide.

https://investorplace.com/2019/07/studi ... ck-higher/

https://seekingalpha.com/symbol/DIS

https://www.thewaltdisneycompany.com/in ... relations/

When it comes to the movie merchandising business, Mel Brooks in "Spaceballs" has the best take on it:

https://www.youtube.com/watch?v=vjB8XXw9y70

[TheMotorcycleBoy]

How did you guess?!!

That's one of my main areas of research. Their numbers have I've looked at do look very good.

Great minds think alike

Ha! Yes, also have Microsoft (MSFT) in my sights. Have also scanned a lot of the restaurant/fast-foodie chains, well you've already replied on the MaccyDs thread I posted....also spent the last couple of weeks looking at stuff like Wendy's, The Cheesecake factory, Restaurant Brands, Yum!, Dominos (WEN, CAKE, QSR, YUM, DPZ)...but nothing really screamed at me to buy, a lot of competition, debt, patchy profitability etc.

Seriously though Disney has a lot going for it. Its share price hadn't done much for three years, but the streaming announcement in April turbo-charged its share price (up 24% since then).

The negatives. Disney's network and cable TV interests, particularly ESPN, are going to come under further pressure from the move towards streaming and breaking the bundling of cable TV channels. Profits could well fall over the next few years thanks to the pressure on its TV interests, whilst earnings from the movie business are rather volatile. Getting streaming established is going to be expensive. Piracy of programming.

The pluses. Content, Content, Content. Disney has more content than anyone else, especially after its acquisition of Fox, with many world-famous brands and is an expert at monetising it across its many businesses. Netflix's recent deals to keep "Friends" and "The Office" demonstrates that there's plenty of value in old content. Disney has tremendous synergies where its content drives traffic to its theme parks and to a lesser extent its cruise liners (the closest competitor in this area, Universal Studios (owned by Comcast) doesn't have anything like the same synergies).

Also the move into streaming has caused the market to re-rate Disney's shares, giving it a little bit of the feel of a "tech stock". Some of the gloss that has recently come off Netflix has ended up on Disney. I got into Disney through owning Marvel shares for some years before Disney bought it; I've never come across a company that's as good as Disney when it comes to integrating its acquisitions and delivering the synergies that so many takeovers promise but most fail to provide.

https://investorplace.com/2019/07/studi ... ck-higher/

https://seekingalpha.com/symbol/DIS

https://www.thewaltdisneycompany.com/in ... relations/

When it comes to the movie merchandising business, Mel Brooks in "Spaceballs" has the best take on it:

https://www.youtube.com/watch?v=vjB8XXw9y70

Thanks again, this is great info.

Matt

[TheMotorcycleBoy]

Yes that seems likely. I'm no expert either, but in bull markets investors chase momentum stocks to ride gains.

US stock market article July'19: "31 stocks with a market capitalization over $2 billion already have doubled or better just this year. Many more trade at sales multiples equivalent to earnings multiples for quality companies."

I've thought of getting an S&P 500 tracker but held off for this reason.

Yes, it's a tough call to make. There presumably (e.g. DIS, on which me and Salvor agree) is still value there. But from my fundamental analysis lots of the hot stocks look to be at the top end of their valuations.

Plus, for me buying at the crest of the wave often ends with disappointment!

Oh for a crystal ball. So many unknowns, on the one hand we have a possible fed rate cut, (and according to R4 possibly another within half a year or so), but we also have trade wars, less growth in China. And as you've pointed out, momentum investors piling on for the ride.

Matt

[TheMotorcycleBoy]

The negatives. Disney's network and cable TV interests, particularly ESPN, are going to come under further pressure from the move towards streaming and breaking the bundling of cable TV channels. Profits could well fall over the next few years thanks to the pressure on its TV interests, whilst earnings from the movie business are rather volatile. Getting streaming established is going to be expensive. Piracy of programming.

This is not specific to Disney, but really about all US quoted companies, and that is, won't their earnings fall when/if the Democratic Party get elected anytime soon, since aren't they likely to reverse DJT's tax cuts?

Matt

[Lootman]

The negatives. Disney's network and cable TV interests, particularly ESPN, are going to come under further pressure from the move towards streaming and breaking the bundling of cable TV channels. Profits could well fall over the next few years thanks to the pressure on its TV interests, whilst earnings from the movie business are rather volatile. Getting streaming established is going to be expensive. Piracy of programming.

This is not specific to Disney, but really about all US quoted companies, and that is, won't their earnings fall when/if the Democratic Party get elected anytime soon, since aren't they likely to reverse DJT's tax cuts?

I've seen studies that show that the stock market often does better under the Dems. For instance the dotcom boom happened under Clinton, whilst the market recovery from the mortgage crisis happened under Obama. There is an argument that the Dems pump more money into the system thereby helping businesses, at least for a good few years.

That said, since Reagan the Dems have all been fairly moderate, and have not reversed the much larger tax cuts that Reagan and Bush made. If we got Sanders or Warren as President, especially if the Dems retake the Senate and retain the House, then we'd be looking at the most left-wing US government ever (*), and all bets would be off. I do not believe that the Americans are ready to elect a socialist, however.

(*) US tax rates were much higher from WW2 to Carter. But there was no talk back then of nationalising healthcare, as there is now, for instance.

[richfool]

TMCB, As a general point many consider US markets and the S&P500 to be over-priced and due for a correction. I suspect it depends on what Trump gets up to or provokes with his tweets, China trade related provocations, FED interest rate decisions etc, as to what actually happens and when. The market could soldier on for a while longer before a correction or Trump might provoke one sooner. You pays your money and takes your choice, as they say.

[TheMotorcycleBoy]

Folk with the patience to wait and then enter slowly often validate the Buffett thesis that the stock market exists to take money from the impatient and give it to the patient, but the fact that there are not lots of stock market millionaires indicates that most of us are not good at doing this. It is also consistent with the thesis that most market commentators and talking heads are clueless.

I'm one who is my four largest shareholdings are American and I haven't a clue about the general direction of the S&P500. I hardly ever do.

Now the economy, that's a different thing altogether. The railroads (my favourite indicator) are saying that things are pretty decent. Looking at figures rather than the headlines things look pretty good. Doesn't mean that this will be reflected in share prices though. Headlines are all too often spun for political purposes.

I stick to those sectors of the market where I'm happy with making a forecast for the company's business for years to come.

Disney looks pretty decent on a PE of 16.3 even after its near-40% rise this year

What do you reckon to Nike (NYSE:NKE)?

Spent the weekend doing the numbers - look good. The kids, least the youngest one!, loves the shoes.