WSJ: Stock valuations are low even though they are near all time highs


#1

Does that mean they will keep going up? :smile:

Highlights:

The S&P 500 trades at 18.8 times earnings over the past 12 months, a basement valuation that is lower than the market’s February trough, when the index’s valuation was around 19 times earnings, according to FactSet. At the S&P 500’s peak in January, the index traded at nearly 22 times earnings.

Strong corporate earnings are making stocks look less pricey than they did before. Companies in the S&P 500 have posted double-digit profit growth for the past three quarters to help earnings catch up with the S&P 500’s 6.7% advance this year. For the latest quarter, profits are on track to register a rise of 25% from a year earlier, one of the fastest rates of earnings growth since 2010, according to FactSet.

https://www.wsj.com/articles/valuations-are-slipping-even-as-stocks-hover-near-records-1533812400


#2

:scream: 2007. :scream_cat:


#3

It means WSJ wants retail investors to keep buying or not selling while their clients are unloading theirs.


#4

A few excerpts from a Merrill Lynch research note:

Political Business Cycle (PBC) models were a hot topic in the 1980s. In the standard “opportunist” PBC model incumbent politicians have an incentive to stimulate the economy going into elections because the benefits-low unemployment-materialize quickly and the costs-high inflation-occur with a lag. …

After playing a small role in the business cycle in recent years, the political business cycle seems to be making a comeback. The double dose of tax cuts and spending increases at the start of this year marked the first major pro-cyclical policy shift since the 1960s. Coming into the year the US economy was already accelerating, the unemployment rate was steadily dropping further below most estimates of “NAIRU” and the Fed was attempting to reduce monetary accommodation. Despite the strong economy … the new policies have helped boost the budget deficit, from 3.2% of GDP in 2016 to an estimated 4.7% of GDP in 2019. This would be the largest deficit for an economy at full employment since World War II. The Trump Administration has also rejected its predecessors’ hands-off approach to the Fed …

The market implications of all of this are fairly straightforward. Growing budget deficits combined with Fed attempts to cool the potential serious overheating of the economy means higher interest rates, a stronger dollar and an up-down pattern for the equity market as growth first surges then slows. Much bigger challenges loom in the longer term. At some point the budget deficit will start having a significant impact on capital investment and trend growth in the economy.


#5

Short term gain, long term price. Market will rally for a year or two, and then the deficit will balloon and Fed will raise rate faster than otherwise.

Make as much as you can in the next 2 years.


#6

So you think it’s more like 2005 and not 2007? :smile:


#7

If we kick Trump out we may avoid disaster and party like 1994. If not, then yes, 2005. :scream:


#8

Stock valuation is so low it is laughable. Dow all the way to 50k; S&P sees 6000 no brainer.


#9

I have said it many times already. We are in a very strong secular bull market that starts from 2013. NOT 2009. It’s only been 5 years and we have many more years to go. We will have some corrections and even recessions along the way, but market will continue to rock n roll.

This video sums it up well:


#10

No need to adjust the start time of the bull market to make it look more appealing. This bull market could go on for 20 years until 2030.


#11

No, it’s important for comparison’s sake. We all now say the last great bull market ran from 1982 to 2000. 1982 was the year market overtook the last session high.

If we used the market bottom as start point it would be something like 1974 to 2000. Very different time scale.

And we keep hearing bullshit like this is the last inning or so to scare people to take profit and hide in a cave. If we are doing comparisons, at least compare apples with apples.


#12

Um… I don’t think 4 years make that much of a difference but if people want to hide in a cave they sure are missing out… :rofl: