Monday, November 17, 2014

Week Ahead Magazine: Contrarian Investment Opportunities

Over the weekend Andrew Nyquist published an article on See It Market's website titled, Is The Nasdaq 100 Overheating? The article noted the sharp advance of the Nasdaq 100 Index in 2014 versus other U.S. focused indices as noted in the below chart from the article. The strong index performance can be partly attributed to the strength in Apple's stock as it comprises nearly 15% of the Nasdaq 100 Index.

From The Blog of HORAN Capital Advisors

Market commentary over the past week seems to be centered on the extended nature of the U.S. equity market and the possibility of an imminent correction. As we have noted, along with many others, the sentiment indicators seem decidedly bullish and they tend to be contrarian signals. Last week we noted the bullishness in the AAII individual investor sentiment survey while others have noted the extreme low in the Rydex Bear/Bull Ratio. As the first chart above notes, equity market strength has been centered in the larger cap U.S. markets (Nasdaq 100, S&P 500 Index and the Dow Jones Industrial Average) Markets that are not hitting new highs on a seemingly daily basis are those outside the U.S. The below chart shows the lagging MSCI EAFE Index and the lagging NYSE Composite.

From The Blog of HORAN Capital Advisors

I include the NYSE Composite for two reasons.
  • the NYSE Composite is represented by 32% of the country weight being outside the U.S., and
  • the technology weight in the index totals 4.9% versus 19.6% for the S&P 500 Index.
From The Blog of HORAN Capital Advisors
Data Source: NYSE

At HORAN we still maintain a positive view on U.S. equity markets. However, the lagging nature of markets outside the U.S. and lower valuations are presenting investors with potential investment opportunities if they believe the U.S. market is extended. If an investor desires to maintain exposure in the U.S., there are sectors that have lagged the broader market as well, for example, energy and materials, just to name a couple. It is difficult to time the market, but foreign oportunities are beginnig to look interesting if one's time horizon is three to five years out.

Some of the article links in the Week Ahead Magazine below look at potential contrarian investment opportunities.

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