By Rick Glaze

The eventful quarter is over. But amid two hurricanes, grandstanding in the U.S. Senate on a Supreme Court Chief Justice and a brutal fire in Los Angeles, is there anything positive to crow about?

There is if you were an astute portfolio allocator. The small-cap stocks as measured by the S&P 600 rose 5.1 percent in the quarter. This group has provided leadership since the bear market of 2000-2002 ended. Many sharp investors have moved money into other areas expecting a rotation into large stocks. But their sharp edge was filed off as they ignored the simple relative health indicators that continue to point to strength in small- and mid-cap companies. If your advisor overlooked this fundamental fact, perhaps it’s time to look for a new advisor.

The Nasdaq increased 4.6 percent for the quarter, the S&P 500 large-stock index gained 3.1 percent and the Dow Jones industrial average rose by 2.9 percent.

The 10-year Treasury bond yield rose to 4.33 percent per year and continues to be range-bound in the low 4 percent area.

While the Dow Jones industrial average of large stocks is down 2 percent for the year, small and mid-size stocks as well as small international companies, known as emerging markets, are up nicely.

The price earnings ratio (P/E) is a measure of the price level of a stock compared to its corporate earnings. When all is said and done, corporate earnings are what drive stocks. Stockholders look for good value, and P/E provides one measure of value.

The P/E of the market is calculated by dividing the price of the stock by its earnings, resulting in a measure of the company’s valuation. For example, if a stock is selling at $100 and its earnings are $10 per share, then the P/E is 10. Over the past five years the highest Dow Jones Industrial Average P/E was 29.7 and the lowest was 16.9. Today it is 18.3, indicating that the valuation is neither overpriced nor cheap.

Rick Glaze is president of Glaze Capital Management of Los Altos and is a registered representative of and offers securities through First Allied Securities Inc.