“Fragility”

Tom Connolly’s Equity Market Forecast
for the upcoming week beginning August 1, 2016
With Market Questions and Answers

Summary Comments:

By almost every measure I track, the current equity market is valued at levels that historically have failed to provide near term returns that are positive. The valuation parallels with the summer of 2015 and the summer of 2007 are eerily similar. Whether it is Price/Earnings ratios, Cash flow multiples, Equities trading at prices above their Discounted Cash Flow values, the number of companies that have gone up in price yet have year-over-year cash generated per share that is lower than the prior year, or the dramatic narrowing of the spread between historic mean differentials of current prices when compared to forward valuation measures, I find little data that point to value investing as a condition of the stock choices available today.

We are in a market where I prefer to hold a core equity portfolio that is hedged by short derivatives, and a portfolio where Gold and Silver play an important role to protect against market and global uncertainty.

As always, be careful out there.

Prior week’s investing activity: I added to hedges and maintained the fewest number of equity holdings for the year.

My portfolio’s YTD performance vs the market, and its current composition as of July 29, 2016, are as follows:

Connolly Portfolio YTD gain as of July 29, 2016 equals + 9.17%
S&P 500 Index YTD gain as of July 29, 2016 equals + 6.34%
NASDAQ Index YTD gain as of July 29, 2016 equals + 3.09%

The Portfolio’s composition as of July 29, 2016 is as follows:

• Cash 51.9%
• Equities 30.4%
• Gold 15.7%
• Fixed Income 2.0%

Forecast for the coming week: Fragility is the word I feel most comfortable with in thinking about the forecast for the upcoming week. I believe this market can turn on a dime and head lower in a meaningful way. What will be the catalyst? I have no idea, but the decline from the current heights could be scary.

Given the summer schedule, I will post the details of the market questions and answers later in the week.

Wishing you all the best,

Tom

Author: Thomas Connolly

Tom possesses a rich and diverse background that includes deep investing experience, senior corporate executive positions, and roles as a Regional Managing Partner and Global Industry Leader within Ernst & Young. He has advised executives on some of the largest acquisitions and dispositions in the Media and Entertainment industry, including clients such as Comcast, Citibank, Sony, Dalian Wanda and Publicis. Tom is a Certified Public Accountant with a Masters Degree from Columbia University. His skills are further accompanied by a personal passion for the study of economic trends and evolving market dynamics.

Leave a Reply

Your email address will not be published. Required fields are marked *