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.”
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The lunar flyby would be the deepest humans have traveled in space in decades.
4 min
It’s go time for the highest-stakes mission at NASA in more than 50 years.
On April 1, the agency is set to launch four astronauts around the moon, the deepest human spaceflight since the final Apollo lunar landing in 1972.
The launch window for Artemis II , as the mission is called, opens at 6:24 p.m. ET.
National Aeronautics and Space Administration teams have been preparing the vehicles to depart from Florida’s Kennedy Space Center on the planned roughly 10-day trip. Crew members have trained for years for this moment.
Reid Wiseman, the NASA astronaut serving as mission commander, said he doesn’t fear taking the voyage. A widower, he does worry at times about what he is putting his daughters through.
“I could have a very comfortable life for them,” Wiseman said in an interview last September.
“But I’m also a human, and I see the spirit in their eyes that is burning in my soul too. And so we’ve just got to never stop going.”
Wiseman’s crewmates on Artemis II are NASA’s Victor Glover and Christina Koch, as well as Canadian Space Agency astronaut Jeremy Hansen.
What are the goals for Artemis II?
The biggest one: Safely fly the crew on vehicles that have never carried astronauts before.
The towering Space Launch System rocket has the job of lofting a vehicle called Orion into space and on its way to the moon.
Orion is designed to carry the crew around the moon and back. Myriad systems on the ship—life support, communications, navigation—will be tested with the astronauts on board.
SLS and Orion don’t have much flight experience. The vehicles last flew in 2022, when the agency completed its uncrewed Artemis I mission .
How is the mission expected to unfold?
Artemis II will begin when SLS takes off from a launchpad in Florida with Orion stacked on top of it.
The so-called upper stage of SLS will later separate from the main part of the rocket with Orion attached, and use its engine to set up the latter vehicle for a push to the moon.
After Orion separates from the upper stage, it will conduct what is called a translunar injection—the engine firing that commits Orion to soaring out to the moon. It will fly to the moon over the course of a few days and travel around its far side.
Orion will face a tough return home after speeding through space. As it hits Earth’s atmosphere, Orion will be flying at 25,000 miles an hour and face temperatures of 5,000 degrees as it slows down. The capsule is designed to land under parachutes in the Pacific Ocean, not far from San Diego.
Is it possible Artemis II will be delayed?
Yes.
For safety reasons, the agency won’t launch if certain tough weather conditions roll through the Cape Canaveral, Fla., area. Delays caused by technical problems are possible, too. NASA has other dates identified for the mission if it doesn’t begin April 1.
Who are the astronauts flying on Artemis II?
The crew will be led by Wiseman, a retired Navy pilot who completed military deployments before joining NASA’s astronaut corps. He traveled to the International Space Station in 2014.
Two other astronauts will represent NASA during the mission: Glover, an experienced Navy pilot, and Koch, who began her career as an electrical engineer for the agency and once spent a year at a research station in the South Pole. Both have traveled to the space station before.
Hansen is a military pilot who joined Canada’s astronaut corps in 2009. He will be making his first trip to space.
Koch’s participation in Artemis II will mark the first time a woman has flown beyond orbits near Earth. Glover and Hansen will be the first African-American and non-American astronauts, respectively, to do the same.
What will the astronauts do during the flight?
The astronauts will evaluate how Orion flies, practice emergency procedures and capture images of the far side of the moon for scientific and exploration purposes (they may become the first humans to see parts of the far side of the lunar surface). Health-tracking projects of the astronauts are designed to inform future missions.
Those efforts will play out in Orion’s crew module, which has about two minivans worth of living area.
On board, the astronauts will spend about 30 minutes a day exercising, using a device that allows them to do dead lifts, rowing and more. Sleep will come in eight-hour stretches in hammocks.
There is a custom-made warmer for meals, with beef brisket and veggie quiche on the menu.
Each astronaut is permitted two flavored beverages a day, including coffee. The crew will hold one hourlong shared meal each day.
The Universal Waste Management System—that’s the toilet—uses air flow to pull fluid and solid waste away into containers.
What happens after Artemis II?
Assuming it goes well, NASA will march on to Artemis III, scheduled for next year. During that operation, NASA plans to launch Orion with crew members on board and have the ship practice docking with lunar-lander vehicles that Elon Musk’s SpaceX and Jeff Bezos’ Blue Origin have been developing. The rendezvous operations will occur relatively close to Earth.
NASA hopes that its contractors and the agency itself are ready to attempt one or more lunar landing missions in 2028. Many current and former spaceflight officials are skeptical that timeline is feasible.
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