July Market Commentary

July 9, 2021

As summer begins, it is a good time to reflect on the financial markets of 2021 thus far. There have been many ups and downs, but overall, the US stock market has been relatively strong. While performance has been strong, there are a few factors that contribute to possible concerns about a market top.

The first of these concerns relates to high valuation of equity securities compared to historical averages. Since the bottom of the COVID-19 related market crash, the US market has seen a near non-stop run up. Below is a chart visualizing the Forward PE compared to other times in recent memory.

The chart shows the Price-to-Earnings levels are at their highest since 1999, which was followed by the three-year bear market of 2000-2002. While the economic background is healthy and earnings of the companies are much stronger than in 1999, PE levels are unlikely to stay at their current heights. The good news is that PE levels go down when the company increases their earnings, so the fact that companies are trading at high levels does not mean that the price will go down because of it.

In order to hedge against the potential for a downturn due in part to valuations, we have taken an important step. We have replaced QQQ (Tech heavy) and FPXI (International) with HEGD (a hedged alternative) in our Kings series in order to get ahead of any possible downturn. We are always working around the clock to make sure our clients are protected.

If you have any questions, please do not hesitate to reach out to us at 419-842-0550.