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b"With\\xa0Annell Danczyk and Brian Lazorishak,\\xa0Senior Portfolio Managers at Stack Financial Management
2017 Stock Market Predictions
Steve welcomes Annell Danczyk and Brian Lazorishak, senior portfolio managers for Stack Financial Management, to discuss their 2017 stock market predictions and analysis of the economy, global financial news, interest rates, and other factors affecting markets.\\xa0\\xa0 Brian is a CMT (Chartered Market Technician) amongst other credentials, and both Brian and Annell are Chartered Financial Analysts.\\xa0\\xa0 Given their backgrounds and their focus on \\u201csafety first\\u201d and \\u201casset protection\\u201d investing strategies, it should come as no surprise that Brain and Annell approach portfolio management with a blend of valuation analysis, \\u201cgrowth at a reasonable price\\u201d stock picking, dividends analysis, and technical trading analysis.\\xa0 Both of our guests utilize and contribute to InvesTech Research, a sister company to Stack Financial which compiles decade\\u2019s worth of market data and information on individual companies, executes a variety of analyses, and shares findings independently of the big Wall Street brokerages.
Because it might be useful for many of our readers, we offer here a simplified overview of terms and concepts describing the different strategies mentioned above:
Valuation analysis at its most basic involves the study of Price / Earnings ratios and companies' internal financial health.\\xa0 The goal is to find undervalued stocks and buy and hold them for the longer-term.\\xa0 The \\u201cgrowth at a reasonable price\\u201d framework looks for companies with competitive advantages and superior profitability, usually smaller cap stocks that trade with higher than average volatility (beta).\\xa0 Dividends analysis identifies stocks with the best dividend yields or those with strong historical dividend growth.\\xa0 Technical trading uses charts and data to model and predict market movements and trends.\\xa0
2016 Markets Review\\xa0
The conversation begins with an overview of the stock market's performance in 2016, and its strong finish after a rocky start and relatively volatile pattern much of the year.\\xa0 Markets seemed to shake off potentially disruptive news stories, in the form of the Brexit vote and Donald Trump's surprise win, without much trouble.\\xa0 Annell notes that markets tend to dislike uncertainty, and, in both of the cases just mentioned, markets ticked up after a perception settled in that those events were resolved, at least for the short term.
P/E Ratios and Advance-Decline Lines
Steve asks about rising P/E ratios\\u2014as reflected in the trusted Shiller PE index, among others\\u2014and what that might tell us about the ongoing bull market.\\xa0 Brian agrees that valuations are historically high, noting that 90 years of S&P performance shows that P/E ratios are in the top 10% all-time and even higher (top 3%) if the late 90s tech bubble and 2008 financial crisis are excluded.\\xa0\\xa0 This fact alone implies higher risk levels.\\xa0\\xa0 He qualifies this unnerving data by claiming that high P/E ratios are not sufficient to stop a bull market.
Annell talks about how they pay attention to performance across a breadth of stocks, not just a basket of highly capitalized names that the well-known indexes favor\\u2014thanks to their being \\u201ccapitalization weighted\\u201d which inflates the importance of large-cap stocks.\\xa0 One key indicator of this breadth is the so-called \\u201cadvance-decline line\\u201d, which as the name suggests, compares the number of stocks of all capitalization levels that have risen to the number that have declined on any given day.\\xa0 This ratio demonstrates when a market rise or decline is broadly shared by a majority of stocks or if it is being led up or down by a small number of over-or-under-performing stocks."