U.S. equities were broadly lower in December with declines across all capitalization sectors. Economic headlines indicated areas of both strength and weakness. November payrolls came in above estimates and resulted in the unemployment rate remaining unchanged from the prior month. Factory orders increased in October. Vehicle sales and durable goods orders declined. Retail sales were lower for the month in November. Inflation continued to moderate as the CPI rate came in at 7.1%. This was the second month of decline in the rate and below the expected level. Housing starts and existing home sales declined. However, new home sales increased in November. As was widely expected, the Fed increased the fed funds rate by 50 basis points. Investors continued to favor higher quality stocks during the month. Quality rating, dividend yield, market capitalization and share buyback were among the top performing selection factors. Momentum factors also performed well with earnings surprise, earnings momentum and price gain factors near the top of the performance list. Growth stocks were less favored as sales growth, projected growth rate, and high beta were among the poorest performing selection factors. Nearly all the industry groups we track had average price declines during the month. The exceptions were oil well equipment & services and oil well drilling. Other notable groups with relatively better performance during the month were insurance, drugs and diversified manufacturing. Retailers, auto & truck manufacturing, and semiconductors were near the bottom of the performance list.
Value of the Market
Ford’s price to value ratio (PVA) is computed by dividing the price of a company’s stock by the value derived from a proprietary intrinsic value model. A PVA greater than 1.00 indicates that a company is overpriced while a PVA less than 1.00 implies that a stock is trading below the level justified by its earnings, quality rating, dividends, projected growth rate, and prevailing interest rates. While looking at the PVA for an individual company can give a good indication of its value, the average PVA for the market as a whole can provide insight into current valuation levels.
Source: Ford Equity Research