July Update

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It’s no secret that loose monetary policy coupled with low interest rates, has helped propel the market to historic highs. While I still believe stocks are richly valued on traditional financial metrics, they appear fairly valued when compared to the 10-year Treasury Bond Yield taking profit margins, dividends and earnings growth into account.

With the continued focus on low Treasury yields and the FOMC likely delaying any further rate hikes until December, many investors will continue to buy the dips helping to support the market. It appears the bull market will stay intact until rates rise or a new political situation develops.

That said, change may be in the air. Large institutional investors are growing weary of high U.S. stocks valuations and the narrow breadth of leading stocks. They’re pulling funds out of the U.S. market and putting their money to work in International and Emerging Market funds where valuations and growth prospects are now deemed more favorable.

Value stocks continue to seriously lag the overall making it a less favorable time to be a value investor. The Vanguard Value ETF (VTV) has returned only 6.36% year to date compared to 11.54% for the Vanguard S&P 500 ETF (VOO) and 22.22% for the NASDAQ 100 (PowerShares QQQ).

While this frustrates many value investors, I welcome these opportunities. It is during these times that investors give up on value investing and start chasing the returns of growth and momentum stocks. This helps create stronger long-term value investing opportunities. It just takes a little patience.

All investing styles will lead and lag at various times. Our value stock sample portfolio is well ahead of value stock ETF’s year to date returns, while only slightly lagging the S&P 500 despite holding over 30% cash. Our value stocks for consideration list continues to narrowly stay ahead of the S&P 500.

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