Market and Sector Overview

For me very first blog entry, I will be looking at the big picture. I'll first look at the S&P 500, and then do some basic sector analysis.

Here's a chart of the S&P. Dow Theorists signaled a probably long entry in June 2009 and a definite buy when price broke above the intermediate high set at the start of 2009 in mid-July 2009. More important for our purpose, the S&P has been in a bear market, dropping from a high of 1303 to 666. This means that stocks are relatively cheap at this point in time.

1 year daily chart of the S&P 500
Source : StockCharts.com

The next step would be to verify the "cheapness" of equities.The P/E ratio and dividend yield are probably the 2 best indicators to use here. Taking data from the article S&P P/E Ratio Is Low, But Has Been Lower, we can immediately see that the P/E is at the lower range of the spectrum. According to Yahoo finance, the current P/E of the S&P is around 14.

S&P 500 monthly P/E Ratio
Source: Prof. Robert J. Shiller

Besides that, the dividend yield for the S&P 500 is also decent, according to NYU. Again, according to Yahoo finance, the current dividend yield is approximately 2.7%.

S&P 500 Yearly Dividend Yield

Source: NYU

It is simple to conclude that stocks as a whole are cheap, and there should be plenty of bargains available for the investors who are careful and thorough.

Next, we move on to sector analysis. To make things simple, I used the S&P Sector SPDR PerfChart feature from StockCharts.com. Of the ten sectors, the 3 most underperforming sector over 757 days (~2 years) are financials, industrials and consumer discretionary, with financials the clear underperformer, at -30% return relative to the S&P. Industrials and consumer discretionary matched the S&P with relative returns of just above 0%.

S&P 500 Sector SPDR PerfChart for 757 days

Source: StockCharts.com

To wrap up my first blog entry, prices have dropped over the past two years, and have broken previous highs recently, showing that it’s a good time to buy. Fundamentals are also strong, with the low P/E ratios and decent dividend yield. Treasuries are yielding close to 0%, so bonds are probably an unattractive investment. Therefore, stocks present a prudent investment at this time.