NEW YORK ( TheStreet) -- The U.S. stock markets have been trading under the cloud of a valuation warning for several months according to www.ValuEngine.com.
Today we show that 76.2% of all stocks are overvalued 42.4% by 20% or more. 15 of 16 sectors are overvalued 13 by double-digit percentages, of which eight are overvalued by 21% to 30.9%. Sector price-to-earnings ratios have become elevated between readings of 17.2 to 29.9.
Stock market strength has been artificially propped up by the
monetary policy of a 0% to 0.25% federal funds rate since Dec. 16, 2008, nearly five years ago. On Sept. 13, 2012 the Fed launched QE3, the purchase of $40 billion a month of agency mortgage-backed securities. On Dec. 12, 2012, the Fed added QE4, the purchase of $45 billion a month of longer maturity U.S. Treasury notes and bonds. These policies have failed and the stock market has become vulnerable to what I call 'QE-Fatigue'.
The purpose of quantitative easing was to lower mortgage rates, but instead the 30-Year fixed rate mortgage is more than 100 basis points higher than before QE3 and QE4 were implemented.
In my opinion the rise in rates caused the weakness in the homebuilder stocks since they peaked on May 20. Stock price weakness then spread to community banks which peaked on July 24. The Regional banks peaked shortly thereafter on August 1. There are no buy-rated homebuilders and there are no buy-rated regional banks according to ValuEngine.
This table shows my suggested sector weightings within an overall continued recommendation allocations to stocks cut to at least 50%, with 50% in cash equivalents.
When overweighting the sectors shown; computer and technology, consumer staples, multi-sector conglomerates, retail-wholesale and utilities I have been suggesting investments in the buy-rated stocks in the
Dow Industrial Average
(CSCO - Get Report)
($23.31) has recently been upgraded to buy from hold after declining from a multi-year high at $26.48 on Aug. 13. Annual and semiannual value levels are $22.76 and $22.39 with quarterly and monthly risky levels at $24.44 and $25.66.