Economic data at mid-quarter is quite mixed. On the positive side: the U.S. stock and bond markets rebounded back to beginning of the year levels; hiring was up in October; and the third quarter GDP was revised from 1.5% up to 2.1%.
On the negative side: consumer sentiment hit a 15-month low this week (on November 24, 2015); the stock and bond markets saw a very narrow rebound mostly from the “FANGs” (companies like Facebook, Amazon, Netflix and Google with high P/E ratios); and revenue and profits for the S&P 500 are headed toward decline for the third quarter in a row. This combination of activity has raised the P/E level of the S&P 500 up to 23 from the 20 level we witnessed over the summer (the long-term average is 15.5%). These mixed signals force us to maintain a cautious stance, avoiding U.S. equities until fundamentals improve.