“Summertime and the livin’ is easy” Summertime, an' the livin' is easy Fish are jumpin' an' the cotton is high. Oh, yo' daddy's rich and yo' ma is good-lookin' So hush, little baby, don' you cry.
George Gershwin made these lyrics famous when he composed the music to DuBose Heyward’s poem for the opera Porgy and Bess. The song has been recorded countless times since, our favorite rendition is by Ella Fitzgerald.“Summertime” is the first song of the opening act. It is a lullaby sung by a young mother named Clara to her baby. It is a peaceful night and a beautiful scene, immediately followed by murder and chaos. Lately livin’ has been easy for the markets. We have no doubt at some point chaos and disruption will follow. Why can’t we just enjoy this rally at GreenPort? Why do we always have to be worried about what’s next? We suppose it’s our nature. Somehow, we are more comfortable when everyone else is uncomfortable. We believe this bull market can and will continue until investors become complacent, or even worse, exuberant. A market bust is almost always preceded by a market boom. No boom, no bust. You see where we are going with this, right? Markets sold off almost 20% during the 4th quarter of last year. We had many concerned calls and emails from our investors. Even though markets bounced back during the 1st quarter of this year, investors were still on edge. We sold another 6% in May. More calls and emails. It’s now mid-July. Stock markets are at all-time highs. We haven't received a single email or phone call asking if the market is overbought. This concerns us. Let’s take a quick trip around the world. While all stock markets are up, once again it is the U.S. that is leading the way. U.S. markets are up a little more than 20% on the year.
Global interest rates remain stubbornly low, reflecting the ultra-easy monetary policies of central banks. The low rates also reflect that despite the many warnings, inflation is no where to be found.
It’s time to revisit the fundamentals. That always brings us comfort. This latest leg up has been a response to Q2 earnings. Once again analysts trimmed their estimates going into earnings season. These lower estimates are generally being “beat” by actual reported earnings. Needless to say, this is bullish for the market.
Bottom line is we can justify stock prices being at their current levels. If we apply a very reasonable multiple of 17X to the most recent earnings, stocks should be considered fair-valued. Given the low inflation and low interest rate environment, a higher multiple could also be justified, meaning stocks would currently be undervalued. Despite already reaching our optimistic forecast for stocks this year, we believe we will likely continue higher. Earnings growth continues to be solid and multiple expansion is a very real possibility. We are truly hoping that you are relaxing and enjoying a carefree summer. That said, we will once again quote our favorite fictional Irish bartender Mr. Dooley. "The job of a newspaper (newsletter in our case), is to comfort the afflicted and afflict the comforted". So don't forget about the trade war with China, Mexico, Canada, European Union, pretty much the whole world. Iran is enriching Uranium to weapons grade levels. Brexit is still a mess. We are approaching a new debt ceiling. We are nearing what is a traditionally weak season for stocks. Investor worry is a critical part of sustaining what is now the longest bull market in history. Will somebody please send us a frantic email, or at least give us a call telling us that you’re concerned about markets? We hope everyone had a great 4th, The GreenPort Team