Most Popular
1. Banking Crisis is Stocks Bull Market Buying Opportunity - Nadeem_Walayat
2.The Crypto Signal for the Precious Metals Market - P_Radomski_CFA
3. One Possible Outcome to a New World Order - Raymond_Matison
4.Nvidia Blow Off Top - Flying High like the Phoenix too Close to the Sun - Nadeem_Walayat
5. Apple AAPL Stock Trend and Earnings Analysis - Nadeem_Walayat
6.AI, Stocks, and Gold Stocks – Connected After All - P_Radomski_CFA
7.Stock Market CHEAT SHEET - - Nadeem_Walayat
8.US Debt Ceiling Crisis Smoke and Mirrors Circus - Nadeem_Walayat
9.Silver Price May Explode - Avi_Gilburt
10.More US Banks Could Collapse -- A Lot More- EWI
Last 7 days
Stock Market Volatility (VIX) - 25th Mar 24
Stock Market Investor Sentiment - 25th Mar 24
The Federal Reserve Didn't Do Anything But It Had Plenty to Say - 25th Mar 24
Stock Market Breadth - 24th Mar 24
Stock Market Margin Debt Indicator - 24th Mar 24
It’s Easy to Scream Stocks Bubble! - 24th Mar 24
Stocks: What to Make of All This Insider Selling- 24th Mar 24
Money Supply Continues To Fall, Economy Worsens – Investors Don’t Care - 24th Mar 24
Get an Edge in the Crypto Market with Order Flow - 24th Mar 24
US Presidential Election Cycle and Recessions - 18th Mar 24
US Recession Already Happened in 2022! - 18th Mar 24
AI can now remember everything you say - 18th Mar 24
Bitcoin Crypto Mania 2024 - MicroStrategy MSTR Blow off Top! - 14th Mar 24
Bitcoin Gravy Train Trend Forecast 2024 - 11th Mar 24
Gold and the Long-Term Inflation Cycle - 11th Mar 24
Fed’s Next Intertest Rate Move might not align with popular consensus - 11th Mar 24
Two Reasons The Fed Manipulates Interest Rates - 11th Mar 24
US Dollar Trend 2024 - 9th Mar 2024
The Bond Trade and Interest Rates - 9th Mar 2024
Investors Don’t Believe the Gold Rally, Still Prefer General Stocks - 9th Mar 2024
Paper Gold Vs. Real Gold: It's Important to Know the Difference - 9th Mar 2024
Stocks: What This "Record Extreme" Indicator May Be Signaling - 9th Mar 2024
My 3 Favorite Trade Setups - Elliott Wave Course - 9th Mar 2024
Bitcoin Crypto Bubble Mania! - 4th Mar 2024
US Interest Rates - When WIll the Fed Pivot - 1st Mar 2024
S&P Stock Market Real Earnings Yield - 29th Feb 2024
US Unemployment is a Fake Statistic - 29th Feb 2024
U.S. financial market’s “Weimar phase” impact to your fiat and digital assets - 29th Feb 2024
What a Breakdown in Silver Mining Stocks! What an Opportunity! - 29th Feb 2024
Why AI will Soon become SA - Synthetic Intelligence - The Machine Learning Megatrend - 29th Feb 2024
Keep Calm and Carry on Buying Quantum AI Tech Stocks - 19th Feb 24

Market Oracle FREE Newsletter

How to Protect your Wealth by Investing in AI Tech Stocks

Stock Markets Expensive on Falling Corporate Earnings Basis

Stock-Markets / Stock Market Valuations May 18, 2009 - 02:23 PM GMT

By: Paul_J_Nolte

Stock-Markets

Nothing to see here…just move along was the phrase du jour, as investors seem to look past still higher unemployment claims (due to Chrysler plant/dealer closings) and lower retail sales. While the markets declined, it seemed to be due to a lack of interest as volume declined than “hard-core” selling. This week will bring more data on the housing sector, which should set the tone for the remainder of the month, as little in the way of earnings or significant economic data will be released on the holiday shortened following week.


Inflation, a huge concern a year ago as energy prices were scaling the heights toward $150/bbl are now merely a blip on the screen. Wage growth is outpacing inflation, so for those working, their purchasing power is actually increasing. Through it all, consumer confidence is rising, as measured by the University of Michigan to the highest level since September. Encouraged by the “green shoots” of recovery, it is hoped that they won’t wither under the summer sun!

As we discussed last week, the markets failed to move above their 200-day moving averages, which is seen as an important distinction between a bull and bear markets. It could be that the markets are taking a collective breath before embarking upon another surge higher, something that bears watching this week. However, one item caught our attention from the Standard & Poor’s website. Earnings on the SP500 have fallen to under $8 per share – meaning the PE ratio of the SP500 is over 100 based upon Friday’s close.

Earnings have declined by 90% since their peak in October ’07, however are estimated to rise to over $40 by the end of 2009, still giving an over 20 multiple to the market at today’s prices – hardly a bargain. Historically, the markets will bottom around 10x earnings and if history holds, we could see the SP500 cut in half on top of the 40% decline from last year. Unless we underestimate the strength of the recovery, the markets could be in for a long and hot summer.

The only positive reading left in the bond model is corporate bonds. Commodity prices have moved a bit higher as have long-term yields. Although they declined toward the end of the week, it was likely in reaction to the weak stock market. We do expect bond yields to remain within a very wide trading range as investors move from stocks toward the safety of bonds or sell bonds in reaction to the very high government issuance of treasury securities. The shorter end of the yield curve is likely to be fairly stable, although at low yields. The Federal Reserve is trying anything/everything to get investors to move to equities, including providing next to no yield on three-month treasury bills.

By Paul J. Nolte CFA
http://www.hinsdaleassociates.com
mailto:pnolte@hinsdaleassociates.com

Copyright © 2009 Paul J. Nolte - All Rights Reserved.
Paul J Nolte is Director of Investments at Hinsdale Associates of Hinsdale. His qualifications include : Chartered Financial Analyst (CFA) , and a Member Investment Analyst Society of Chicago.

Disclaimer - The opinions expressed in the Investment Newsletter are those of the author and are based upon information that is believed to be accurate and reliable, but are opinions and do not constitute a guarantee of present or future financial market conditions.

Paul J. Nolte Archive

© 2005-2022 http://www.MarketOracle.co.uk - The Market Oracle is a FREE Daily Financial Markets Analysis & Forecasting online publication.


Post Comment

Only logged in users are allowed to post comments. Register/ Log in