Past
Commentaries
04/08/2025
Current Commentary
Dear Friends,
The S&P 500 was up 51% over the last 2 years. After last week’s blow-off it's down 12% year to date – not an unreasonable or disturbing correction. It has been expensive and overvalued relative to earnings. Its P/E has dropped from 31 to 25 - a significant improvement. (The Brae Head aggregate P/E as of 3/31was 21). We await continued improvement in earnings. Those earnings will be at risk in the event of a recession, the odds of which have increased to 40 to 65% depending on who you read. Economic indicators have been indeterminate for the last few years. The market is discounting a potential trade war which would lead to a recession.
The NASDAQ index, which lists most technology stocks, is down 17% YTD. Our portfolios are generally positioned for lower volatility, i.e. lower risk.
For the last few months a lot of my time has been spent searching for values in the market and it's been difficult finding growth at a reasonable price in companies that otherwise meet my screens. It's hard shopping in a market that is uncertain about its direction, but the direction is up 65% of the time, historically, 2 days out of 3. To be clear, there are companies that I would love to own, or own more of, that are just too expensive in my opinion. Maybe they are getting cheaper.
There are thousands of traded companies. My regular information feeds are from my market monitor, Market-Q, with data from ICE (Intercontinental Exchange which owns NYSE) and from Schwab. About 4 hours every day is spent reading, researching and reviewing. My regular readings are the The Wall Street Journal, Investors Business Daily, Forbes; CFRA Research, Morningstar, Schwab, JP Morgan, American Institute for Economic Research a couple of newsletters including Motley Fool, a few economists, and screening services that sort the data I input and yield the companies that pass.
Every company in every portfolio I manage is carefully and thoroughly researched and I believe capable of surviving and thriving. However, nothing is guaranteed and nobody knows what the future may bring. Risk is mitigated by diversification and time. Mitigated, not cured.
The world financial system and the global trade engine are unravelling as mercantilism spreads. It’s regrettable and it’s too much for a worthy discussion here. There is a great deal of uncertainty regarding tariffs and the unsustainable Federal debt. Resetting terms with our trading partners is not unreasonable, but trade wars are anathema. Nobody wins. Doubtless there will be unforeseen consequences to the tariff gambit. Stability (peace) requires a diverse economy, sound currency, reliable supply chains and an overwhelming military. Onshoring the defense industry is vital, but a fortress America is inconceivable. Over 60% of S&P 500 earnings come from abroad. Healthy alliances, east and west, are critical.
Expect volatility in the months ahead. If you feel the need for more liquidity, let me know as soon as possible. We never sell in a panic. Interest rates too have been volatile: the 10 year Treasury yields 3.7% this morning, down from 4.7% in January. The Schwab Value Advantage Money Fund has not been volatile, yielding 4.17% (annualized weekly yield). That is our default money market fund.
Kind Regards,
Dennis M. O’Connor
