Market Update: Analysis of Major Indices

Overview

• Previous Analysis (January): TSX, NASDAQ, Dow Jones, S&P 500 were significantly overvalued.
• Standard Deviation Metric: Used to measure how far markets deviate from historical trends.
• Current Update: Markets have pulled back with varying degrees.

Key Indices Performance Since January

• S&P 500: Down ~9.5%
• Dow Jones: Down ~9.7%
• NASDAQ 100: Down ~10-11%
• TSX: Down just over 2%

Standard Deviation Review

• Definition: Measures how far something moves from its average over time.
• Implication: Markets 1-2 standard deviations above the mean are expensive and risky; below mean indicates undervaluation.
• Mean Reversion: Prices tend to revert to the mean over time.

Current Market Analysis

S&P 500

• Previous: Over 2 standard deviations above the mean, signifying extreme overvaluation.
• Current: Below 2 standard deviations but still elevated.
• Investor Advice: Focus on quality, diversification, and buy selectively during market weaknesses.

Dow Jones Industrial Average

• Previous: Above +2 standard deviations, indicating overvaluation.
• Current: Closer to +1 standard deviation; significant mean reversion.
• Investor Advice: Focus on dividend blue-chip companies for long-term investments.

NASDAQ 100

• Previous: Well above +2 standard deviations, driven by tech enthusiasm.
• Current: Below +2 standard deviations but still elevated.
• Investor Advice: Stay selective, consider broadening focus beyond mega-cap names.

TSX (Toronto Stock Exchange)

• Previous: Above +2 standard deviations, indicating significant overvaluation.
• Current: Still above +2 standard deviations; resilient compared to US indices.
• Investor Advice: Extreme caution, avoid chasing prices, focus on income defensive sectors.

Aggregate Insights

• Overall Correction: Markets have corrected but are not cheap yet.
• Extreme Risks Eased: But TSX remains a notable exception still trading high.
• Investment Strategy: Focus on selective buying, quality, and diversification.
• Corrections: Normal, healthy part of investing; resets expectations and valuations.

Final Thoughts

• Investor Strategy: Stay disciplined, rebalance portfolios thoughtfully.
• Long-term Opportunities: Corrections create opportunities for patient investors.

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