The stronger dollar has already been a significant thorn in the side of U.S. multi-nationals vis-a-vis sales declines and a deterioration in profits. Not only are these companies trading at lofty valuations (P/S of 1.84), but valuations will become more extreme with the ongoing contraction in S&P 500 earnings per share. Earnings growth for Q2 and Q3 is negative, and that is hardly a tailwind for further price appreciation in stocks.

Earnings Recession 2015

At present, financial markets are factoring in a 50-50 chance that chairwoman Yellen will lead her committee toward a face-saving action in December. Will they genuinely move forward with a directional shift toward tightening when U.S. gross domestic product (GDP) increased at a dismal 1.5 percent annual rate in the third quarter? With pending home sales faltering? With job growth slowing, job cuts rising and 19.2% of 25-54 year old civilians not participating in the labor force?

Labor Force 25-54

If one considers economic deceleration, factors in expensive valuations and mixes in the Fed’s intention to hike overnight lending rates, one would be hard-pressed in making a case for further price appreciation in stocks. That said, bad news seems to ensure that there will be more stimulus than tightening in the aggregate. In the near-term, then, money may keep finding its way into U.S. stock assets and dollar-hedged developed world assets.

I am sticking with the “originals” – S&P 500 SPDR Trust (SPY) and PowerShares NASDAQ 100 (QQQ) – for the bulk of equity exposure. I also maintain low volatility via iShares USA Low Volatility (USMV) and “quality” via iShares MSCI USA Quality Factor (QUAL). Small caps, high yield, emerging markets, unhedged foreign markets? The purveyors of false hope – the leaders of central banks around the world – have successfully reflated some assets. They’re no longer capable of reflating them all.

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Disclosure Statement: ETF Expert is a web log (“blog”) that makes the world of ETFs easier to understand. Gary Gordon, MS, CFP is the president of Pacific Park Financial, Inc., a Registered Investment Adviser with the SEC. Gary Gordon, Pacific Park Financial, Inc., and/or its clients may hold positions in the ETFs, mutual funds, and/or any investment asset mentioned above. The commentary does not constitute individualized investment advice. The opinions offered herein are not personalized recommendations to buy, sell or hold securities. At times, issuers of exchange-traded products compensate Pacific Park Financial, Inc. or its subsidiaries for advertising at the ETF Expert website. ETF Expert content is created independently of any advertising relationship.