Week In Brief: September 29

October 2, 2017

Welcome to October. Known as the jinx month because of the crashes that have historically occurred on its watch. 1929, 1978, 1979, 1987, 1989, 1997 and 2008.
Conversely, October has also served as the "bear killer." With the month marking the end of the bear markets of 1946, 1957, 1960, 1962, 1966, 1974, 1987, 1990, 1998, 2001, 2002, and 2011. Perhaps October's most probable proffering is higher volatility.
Last week, the S&P 500 ascended to heights heretofore untold. Climbing above the 2,500 level for the first time in its vaunted 60-year history. Ever climbing the wall of worry. As retail and institutional investors alike continue to doubt the ability of equity markets to rise to even more glorious heights. To their own detriment, however, as stocks appear headstrong in their intent to move higher.
Bears continue to view P/E ratios in a vacuum. Concluding that equities remain overpriced. Perilous. As it remains the ultimate blind spot for equity investors to not view stock valuations against debt. And as interest rates remain near historic lows, equities -- with their lush dividends and promise of potential price appreciation -- remain the easy choice.
Nor do they appear too overvalued.
With the P/E ratio of the S&P 500 sitting at 17.8 times, versus a 25-year average of 16. A touch elevated. But hardly worth the anxiety with which bears choose to scare each other into submission.
One small item that gives us pause? 2017. As the second halves of years ending in seven have been terrible for stocks. In fact, aside from 1927 and 1947, years ending in seven have been among the worst equity drawdowns and overall returns since the turn of the twentieth century.
Q4 2017 features an abundance of potential risks that could add to doom-and-gloom mythology of year sevens. Spanish and Italian secessionist movements. The U.S. tax overhaul. China's twice-a-decade party congress. North Korea. And the Fed's attempts to unload trillions of assets.
Really, what could possibly go wrong?
In the category of unsettling irony, it has been revealed that -- immediately prior to revelations of the massive consumer information hack of Equifax -- the consumer credit giant had just scored a $7 million contract to protect the IRS from fraud.
Talk about the blind leading the blind. On a leash comprised of your hard-earned tax dollars. Comforting, indeed.
Weekly Results
Major indices finished mixed last week. DJIA gained 0.25%, S&P 500 rose 0.67%. The Nasdaq climbed 1.07%. While small cap stocks gained 2.78%. 10-year Treasury bond yield rose 8 basis points to 2.33%. Gold closed down $17.70 per ounce, or 1.36%.

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