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Given the increased volatility in markets, I thought I’d share some thoughts on the current state of the market. Note that this isn’t a forecast nor does it constitute advice to buy or sell any securities.

Positives

The STI’s PE10 (data here) is 12.2x which is pretty much the same as it’s PE (12.21x). That translates to an earnings yield above 8% which in my opinion, is pretty attractive.

If you’re wondering how this stacks up the past, the PE10 isn’t dirt-cheap. It was cheaper during the depths of the GFC in early 2009 and also once more in early 2016. However, it is cheaper than it was in 2013- early 2015 and cheaper than during the run up to the GFC in 2006-2007.

Also, 10-year bond yield have fallen really low. The SGS 10-year bond yield is currently 1.735% which means that spreads between the STI and 10-year bond have reached 6.46% which is some of the highest spreads I’ve seen since I’ve started tracking the STI PE10 vs. the SGS 10-year bond yield.

Negatives

From a psychological/technical standpoint, markets are not down in the dumps. The 50-day SMA is still above the 200-day SMA and prices have not fallen all that much (only roughly 14% from its May 2018 peak and 9% from its late April 2019 peak). Also, with the August close, the monthly STI has now closed below the 10 period MA which is Meb Faber’s momentum signal to get out of the market.

Plus, let’s not forget that the Trade War isn’t going anytime soon even though, as of late August, it seems like Xi and Trump are trying to kiss and make up.

Trump faces re-election next year and if he’s playing to win, then it’s likely he’ll find some foreign powers to blame for America’s real or perceived woes. And we know that his go-to guys to blame for America’s woes are those that have huge trade surpluses with the U.S., namely, Mexico and China.

Also, a no-deal Brexit is also looming in October and with Boris Johnson in charge, it’s less likely there will be any sort of deal that can be reached and will tensions between Japan and Korea get worse? And who knows how the situation in Hong Kong will turn out?

Only time will tell.

Overall

I’m near-term negative but long-term positive because geopolitics and economic sentiment is bad but valuations are starting to look attractive. Of course, if you’re a DCA sort of person, then all of the above shouldn’t matter to you.