Avoiding the Low Volatility Trap

Stock market volatility—how much the market goes up and down on a daily basis—has recently been unusually low. Since July of last year the S&P 500 index of large US stocks has gone either up or down by more than 1% on only about 12% of trading days, compared to a historical average of more than 20%.

Topics: Blog Stock Market Risk Volatility

Brazil’s Stock Market Struggles

Emerging market stocks haven’t done particularly well in recent years, but Brazilian stocks have done especially poorly. From 2010 through 2013, Brazilian stocks substantially underperformed emerging markets as a whole in each calendar year. So far this year, however, Brazilian stocks have outpaced their emerging market peers. Does this reversal herald a comeback for Brazil’s stock market?

Topics: Blog Stock Market Economy Brazil Valuation

Why Dividends Matter

In a recent post we discussed how taking a total return approach to investing can have benefits relative to focusing on dividends when trying to generate income from your portfolio. Does that mean dividends (and the numerous funds and commentators who focus on them) are irrelevant? Not exactly.

Topics: Blog Stock Market Dividends

Should You Prepare for a Long Period of Slow Growth?

More than 5 years after the most acute phase of America’s financial crisis, the US unemployment rate is still far above its pre-crisis level. In a series of articles during the past few months, former Treasury Secretary Larry Summers suggested that the economy may be in a persistently depressed state (a “secular stagnation” in the technical jargon). The article sparked renewed debate among economists about whether such a prolonged slump was theoretically possible, and if so, whether the economy was in one right now.

Topics: Blog Stock Market Economy Larry Summers Secular Stagnation

Q1 Recap: US Stocks Overcome Russia, China to Stay in Positive Territory

The first quarter of 2014 had a few bumps in store for financial markets, yet in the end almost every asset class ended up with positive returns. Bonds performed well as interest rates declined and the US inflation rate remained below the Federal Reserve’s 2% target. US stocks recovered from January jitters to end the quarter in positive territory. Even emerging market stocks, buffeted by fears of financial instability in countries such as Turkey, Russia’s military adventurism in Ukraine, and weak economic data from China, finished the quarter only slightly down.

Topics: Blog Stock Market Recap China Russia

What the P-E Ratio Is Saying

With the S&P 500 index of large US stocks having risen by close to 150% since its trough during the financial crisis, are US stocks now overvalued? One way to answer this question is by looking at the price-to-earnings ratio (or “P-E ratio”), which measures how high stock prices are relative to the profits that companies are generating. If the P-E ratio for the market as a whole is higher than its historical average, investors may be overvaluing stocks and the future returns from investing in the stock market may be below average.

Topics: Blog Stock Market P-E Ratio Robert Shiller Valuation

Record-High Profits May Not Last

One factor that has buoyed U.S. stocks in recent years is high profit margins. Corporate profits as percent of the country’s total output reached a record level of 10.8% in the first quarter of 2012, and they’ve gone even higher since then. In the third quarter of 2013 (the last period for which numbers are available) they reached a new record of 11%.

Topics: Blog Stock Market Corporate Profits