We are often asked for our opinion regarding the state of the investment markets. In an effort to keep you abreast of our latest thinking we developed the Sherpa Investment View. This is a graphical representation of our forward-looking views on the stock and bond markets.
Market Turbulence - February 7, 2018
Sherpa Investment View - 2016 2nd Quarter
Sherpa Investment View - 2016 1st Quarter
Sherpa Investment View - 2015 4th Quarter
We divide our outlook on the stock market into the four drivers of stock prices: market valuation, earnings growth, dividends, and inflation. We then color-code each aspect to indicate our view: green indicates we have a positive outlook in that area, red indicates concern and pessimism, yellow signals caution, and white is neutral. As the current chart shows, we have a pessimistic view of the stock market (indicated in red) due to the confluence of the four factors. You'll see we further divide earnings into two separate segments: profits and economic growth. The only two ways for earnings to grow are for profit margins to increase or have the economy as a whole get larger.
We then examine the bond market by its various risk characteristics: issuer, interest rates/inflation, geography, and currency. We then apply the same color code used for the stock market. As you can see in the graphic, we prefer corporate bonds with short-term maturities. We also prefer bonds in emerging markets with un-hedged currency exposure.
If you desire more detail in our outlook, we also have a second part of the Investment View (Full Summary) that goes just a bit deeper into the thinking behind our views.