Friday Charts: Black Friday, Worthless Dollars and Why 3,907 Stocks Vanished Overnight
If you overate on Thanksgiving Day (I did!) and aren’t operating at peak mental capacity this morning, then you’re in luck.
It’s Friday, which means it’s time to impart some financial insights and wisdom with the help of a few graphics.
Minimal words and lots of pictures shouldn’t be too taxing. I promise. And here’s the proof…
A Black Friday Trading Alert
I alluded to it on my recent CNBC appearance… This is not the time to be blindly buying retail stocks!
While deep discounts might be easy to come by for shoppers on Black Friday, historically, profits aren’t so easy to nab for investors.
“Contrary to conventional wisdom, although retailers derive an outsized share of their annual sales over the next month, their stocks have typically underperformed,” says Bespoke Investment Group.
They’re not kidding.
From Thanksgiving to Christmas, the S&P 500 Index averages a gain of 1.7%, with positive returns 77% of the time.
Meanwhile, the S&P 500 Retail Group averages a gain of just 0.8% over the same period, with positive returns only 54% of the time.
Bottom line: If you’re looking for a good deal right now, look somewhere other than the average retail stock.
Bye, Bye, Bye… Or Not!
Ever hear the one about the U.S. dollar losing its status as the world’s reserve currency in the aftermath of the Great Recession? Me, too.
While pundits might make a convincing argument, ignore them. The data tells the true story.
Turns out, the dollar’s share of global reserves has barely budged since 2009, even after adjusting for valuation changes.
Want more proof of the dollar’s staying power?
This fun factoid should do the trick: During the most recent U.S. government shutdown, foreign banks actually increased their U.S. Treasury holdings, according to analysis by Morgan Stanley (MS).
Bottom line: Leave the “bye, bye, byes” to ‘N Sync. The U.S. dollar isn’t going anywhere.
Or as Morgan Stanley’s Foreign Exchange Strategist, Evan Brown, says, “We believe that the dollar’s status as a primary reserve currency is unlikely to be challenged anytime soon – mainly due to a lack of alternatives.”
The Great Price-to-Earnings Ratio Debate
The one bubble talk I’ve shied away from over the last two weeks involves good old-fashioned stocks. I can’t resist any longer.
While everyone’s debating how high of a price-to-earnings ratio is too high, here’s an overlooked graphic germane to the discussion.
Since 1997, nearly 4,000 stocks vanished from existence, according to the World Federation of Exchanges.
Where have they all gone? Private, mostly.
Jason DeSena Trennert, Chief Investment Strategist at Strategas Research Partners, says the drop in stocks is “highly correlated” to the rise in assets under management by private equity firms.
Making matters worse, they’re not being replaced via initial public offerings, thanks to the onerous and costly Sarbanes-Oxley regulations passed in 2002, which discourage companies from going public.
Despite the disappearing acts, though, the total market value of all publicly traded stocks since 1997 increased 2.4%, to $21.4 trillion.
Bottom line: More money is chasing after fewer opportunities, which naturally leads to higher prices and price-to-earnings ratios. It’s simple supply and demand at work. May the bull march on!
That’s it for this week. But before you go, let us know what you think about the fate of the U.S. dollar, stock market bubbles, and our random 1980s and 1990s pop-culture references by sounding off here.
If we’ve made you a smarter or richer investor, we don’t mind hearing about that, either.
Ahead of the tape,