October produced unnerving turbulence for equity investors. Now, the Democrats, likely flexing more muscle on Capitol Hill, bring new uncertainties. But for the ordinary investor, equities remain the most essential tool for accomplishing long-term financial goals like a secure retirement.
In recent years, big-tech stocks have accounted for the lion’s share of stock gains but virtually every hot tech company faces new challenges. Facebook and must bear added costs to ensure user privacy, police content for foreign interference, and cope with additional government oversight.
Along with Google, those social media enterprises’ basic business model – mining user data to sell ads and information to market analytic firms – will require more self-discipline or encounter new regulation.
Netflix is bracing for the publication of a Wall Street Journal investigation into its workplace practices. Amazon and Google have attracted antitrust scrutiny for their treatment of business partners. Apple is casting about for new businesses, because it doesn’t have any hot new gadgets and iPhones are approaching market saturation.
Stock valuations are a bit below the 25-year average.
Even with the lofty valuations of glamour tech stocks, the trailing 12-month price-earnings ratio for the S&P 500, which accounts for approximately 80% of publicly traded U.S. equities, is about 22 and below its 25-year average of 25.
Overall, with the economy continuing to grow at about 3% a year in real terms and 5% to 6% nominally, the fundamentals point up for equities, but progress will depend on more lift in the valuations of traditional companies.
Consumer products like Unilever and Kimberly-Clark, after a nadir, are exercising pricing power, and much overlooked auto makers have been marking gains, as sales volumes level, by increasing technology content and pushing up average vehicle prices.
