To Buy Or Not To Buy? That Is The Question

Published on: 11/22/2022

In this edition of Chart Talk, Tony Ogorek and Jeff Viksjo discuss if it is a good time to buy in the stock market.

 

TRANSCRIPT

 

TONY:

Welcome to another edition of Chart Talk.  I’m Tony Ogorek.  I’m here with Portfolio Manager, Jeff Viksjo.  And Jeff, today we’re going to attempt to answer the question ‘To buy or not to buy?’, the stock market that is.  Got a couple of charts.  Let’s take a look at the first chart, which takes a look at Treasury Yields, the 3-month versus the 10-year.  And Jeff, why is this a significant indicator for many market prognosticators?

 

JEFF:

Yea, what we’re trying to do is determine if a recession is coming, or at least if slower growth is coming.  And the reason that we want a recession, which is counter-intuitive, is because it means the Fed could stop raising interest rates.  And that’s what’s caused all the pain this year.  So, if we get a mild recession of some kind, that may actually be good for stocks and it will certainly good for higher quality bonds.  This is considered one of the most reliable indicators on whether a recession is coming.  It’s the different between very short-term bonds and very long-term bonds.  And when there’s no difference at all, or the shorter-term bonds are actually higher, what the market is saying is that growth is going to slow in the future and rates are coming down.  So, if you look at this chart, every time that number has been gotten zero, or negative, which means the short-term bonds are higher, we’ve had that recession.  And Tony, we are now at zero, and negative there, indicating a recession is close.

 

TONY:

Ok Jeff, so a lot of people will look at this and say, ‘Well obviously, this is a signal to buy’.  But, you know, life isn’t that simple in our line of work.

So, let’s take a look at the second chart.  Here, this takes a look at valuations.  Even though the market has fallen from its high valuations we’ve had earlier in the year, relative to the Global Financial Crisis.  Today, it doesn’t look like stocks will be cheap at all.

 

JEFF:

Yea, the Fed may stop raising rates, which would be a good thing.  But we also need stocks to be cheap enough to buy, have a nice return going forward.  And this just shows you the price that you’re paying relative to earnings.  You know, it’s lower, certainly, than it was right after COVID, Tony, but it’s nowhere near the level it was after the Great Financial Crisis, the bottom that we saw.  So, stocks are cheaper, but not cheap.

 

TONY:

Thanks Jeff.  So, this first chart may not be an ‘all clear’ signal to buy.  We may have a little bit more downside to endure first.

Thanks Jeff and thank you for viewing this edition of Chart Talk.  We look forward to seeing you at our next talk.

 

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