Stocks Are Wobbling. Follow These 3 Rules for Better Returns.
3 min
Suddenly, stocks look shaky. After briefly touching 40,000 earlier this month, the Dow has since shed more than 1,000 points, as worries flare about where interest rates are headed next . The index posted another loss on Wednesday, down 411 points, or 1.06%, to 38,442.
While volatility can be frustrating. It has always been part of the two-steps forward, one-step back nature of the stock market. So keep in mind: Stocks may still have room to run , and they perform their best when investors feel least confident.
Here are three smart rules for interpreting the current market culled from new stock research.
Don’t assume the market is in a bubble
Anytime the market hits a new high, then pulls back sharply, it’s natural to wonder: Could it be all downhill from here? It isn’t an idle concern. Even after the recent dip, stocks are trading at more than 25 times trailing 12-month earnings, their highest level since 2021, according to FactSet.
Still, investors shouldn’t necessarily assume the market has become irrational, suggests a recent note by Leuthold Group, a stock research firm known for compiling dozens of bespoke indicators to measure market sentiment.
Leuthold recently compared large capitalisation stock prices to four separate valuation thresholds it thinks mark out bubble territory.
The results? This year, prices have approached three of these thresholds—one focused on forecast earnings, one based on average earnings and one based on cash flow. But after getting close, stocks didn’t blow through these thresholds as might be expected during a bubble. Instead, they stalled or pulled back. “‘Resistance’ proves formidable,” the firm concluded, citing a term common in technical analysis.
The fourth valuation threshold, which Leuthold calls “P/E on trailing peak GAAP EPS” has yet to be reached. The indicator compares stock prices not to companies’ most recent earnings, but to the market’s record for earnings, in this case set in the first quarter of 2022.
While stocks are trading at 25 times their peak earnings—a very high figure by historical standards—they are still below the 30 times level Leuthold thinks signals bubble territory. The upshot: “We don’t think U.S. large caps quite qualify as a mania,” writes Chief Investment Officer Doug Ramsey.
Don’t sweat the short-term
It’s natural after a short, sharp pullback to worry where the market is headed next. But trying to make short-term market calls is usually a fool’s errand, according to Trivariate Research, another investment firm.
Trivariate recently tested more than two dozen stock market metrics it says are commonly used to predict short-term stock market declines. These indicators included the S&P 500 put-to-call ratio, mutual fund flows, the futures-based VIX fear gauge, the price of oil and more.
The results were “terrible,” according to the firm. “The factors’ large loss predictions were correct at about the same rate as random selection,” Trivariate said in its note.
The firm found that during many months when signals like the VIX and the Conference Board’s Leading Economic Indicators Index predicted a big drop, the market actually showed bigger-than-average gains. The indicators were signalling volatility not declines, the firm noted.
In another test, a model that Trivariate built based on several other indicators also wasn’t much help either. When the model predicted a large stock market loss, defined as a 2.5% monthly drop, the decline failed to materialise 60% of the time.
Do embrace the uncertainty
While uncertainty isn’t always comfortable, it can be to investors’ advantage. If you are willing to run with it.
Retired Wall Street economist Jim Paulsen points to a metric known as the Monetary Policy Uncertainty Index , which tallies newspaper reports and other data to measure uncertainty about what the Fed will do next.
Since 1985 the index has averaged just under 100, but since 2020 it has been elevated most of the time. It’s currently at 144, a higher level than during about 80% of its history.
Still, Paulsen argues this is good news. He compares the Fed’s Jerome Powell era, where the index has averaged 110, to eras of three earlier Fed Chairs: Ben Bernanke, Janet Yellen, and Alan Greenspan, where it averaged about 75.
Investors have been rewarded for enduring the lack of clarity. The S&P 500 has posted average annual returns of more than 12% during Powell’s term, compared with less than 10% under his three predecessors, according to the note.
“All investors long for clarity,” Paulsen writes. “But the stock market never does that well when you and I are comfortable. The great bulk of the returns generated by the stock market typically occur when most are still in their bunkers waiting for conditions to improve.”
Copyright 2020, Dow Jones & Company, Inc. All Rights Reserved Worldwide. LEARN MORE
As tariffs bite, Sydney’s MAISON de SABRÉ is pushing deeper into the US, holding firm on pricing and proving that resilience in luxury means more than survival.
Early indications from several big regional real-estate boards suggest March was overall another down month.
The government in Switzerland has waived residency requirements in a handful of locations, including one that’s growing fast.
3 min
While golden visa schemes proliferate, Switzerland remains famously protective about buying property in the country.
Rules known as Lex Koller, introduced in 1983, prohibit foreigners from buying homes in cities like Geneva and Zurich. And in the few locations where foreigners can buy, purchase permits come with rules around size and occupancy.
But non-Swiss buyers who have coveted an Alpine home now have a pathway to ownership, and it’s likely to come with financial upside. The Swiss government has waived residency requirements in a handful of locations where developers have negotiated exemptions in exchange for billions of dollars of investment in construction and improvements.
Andermatt, a village 4,715 feet above sea level in the centre of the Swiss Alps, is the largest municipality to open up to foreign buyers.
Its main investor, Egyptian magnate Samih Sawiris, “believed Andermatt could become a full-town redevelopment when he first visited in 2005, but the key was to offer real estate to people outside of Switzerland,” said Russell Collins, chief commercial officer of Andermatt-Swiss Alps, Sawiris’s development company.
“We became the only large-scale real estate development in Switzerland with an exemption from the Lex Koller regulations.”
In the ensuing decades, Andermatt has become a major draw for high-net-worth buyers from around the world, said Alex Koch de Gooreynd, a partner at Knight Frank in London and head of its Swiss residential sales team.
“What the Andermatt-Swiss Alps guys have done is incredible,” he said. “It’s an impressive resort, and there is still a good 10 years’ worth of construction to come. The future of the resort is very good.”
Andermatt’s profile got another boost from the 2022 acquisition of its ski and resort operations by Vail Resorts, which runs 41 ski destinations worldwide.
“Vail has committed to 150 million Swiss francs (US$175 million) in investments, which is another game-changer,” de Gooreynd said.
“If you’d asked me about Andermatt 10 years ago, I would have said the ski areas weren’t good enough of a draw.”
Along with the five-star Chedi Andermatt hotel and residences, which opened in 2013, residential offerings include the Gotthard Residences at the Radisson Blu hotel; at least six branded residences are planned to open by 2030, according to Jeremy Rollason, director for France, Switzerland, and Austria at Savills Ski.
“Most of these are niche, boutique buildings with anywhere from eight to 14 units, and they’re releasing them selectively to create interest and demand, which has been a very successful approach,” he said.
“Andermatt is an emerging destination, and an intelligent buy. Many buyers haven’t heard of it, but it’s about building a brand to the level of Verbier, Courchevel or Gstaad.”
The Alpinist, Andermatt’s third hotel residence, is slated to open in 2027; with 164 apartments, the five-star project will be run by Andermatt-Swiss Alps, according to Collins.
Other developments include Tova, an 18-unit project designed by Norwegian architects Snohetta, and La Foret, an 18-apartment building conceived by Swiss architects Brandenberger Kloter.
Prices in Andermatt’s new buildings range from around 1.35 million francs for a one-bedroom apartment to as much as 3.5 million francs for a two-bedroom unit, according to Astrid Josuran, an agent with Zurich Sotheby’s International Realty.
Penthouses with four or more bedrooms average 5 million-6 million francs. “Property values have been increasing steadily, with an average annual growth rate of 7.7% in the last 10 years,” she said.
“New developments will continue for the next 10 years, after which supply will be limited.”
Foreign buyers can obtain mortgages from Swiss banks, where current rates hover around 1.5% “and are declining,” Josuran said.
Compared to other countries with Alpine resorts, Switzerland also offers tax advantages, said Rollason of Savills. “France has a wealth tax on property wealth, which can become quite penal if you own $4 million or $5 million worth of property,” he said.
Andermatt’s high-end lifestyle has enhanced its appeal, said Collins of Andermatt-Swiss Alps.
“We have three Michelin-starred restaurants, and we want to create a culinary hub here,” he said. “We’ve redeveloped the main shopping promenade, Furkagasse, with 20 new retail and culinary outlets.
And there is a unique international community developing. While half our owners are Swiss, we have British, Italian and German buyers, and we are seeing inquiries from the U.S.”
But Andermatt is not the only Swiss location to cut red tape for foreign buyers.
The much smaller Samnaun resort, between Davos and Innsbruck, Austria, “is zoned so we can sell to foreigners,” said Thomas Joyce of Alpine property specialist Pure International.
“It’s high-altitude, with good restaurants and offers low property taxes of the Graubunden canton where it’s located.”
At the Edge, a new 22-apartment project by a Dutch developer, prices range from 12,000-13,500 francs per square metre, he said.
As Andermatt’s stature grows, this is a strategic time for foreigners to invest, said Josuran of Sotheby’s.
“It might be under the radar now, but it’s rapidly growing, and already among Switzerland’s most attractive ski locations,” she said. “Now’s the time to buy, before it reaches the status of a St. Moritz or Zermatt.”
An intriguing new holiday home concept is emerging for high net worth Australians.
New windows can insulate better than most walls, and some can even survive being hit with a two-by-four shot from a cannon.
