With the stock market (as seen in the S&P500) recently near the 1020 level, there is no debating that the rally since the early March lows of 666 has been a very strong one. Also, there have been very strong rallies in other markets as well (Nasdaq, Emerging Markets, Debt Markets, etc.)
Given this strong rally, one is led to wonder as to what the stock market is "telling" us. Such a strong rally in the face of pervasive economic weakness seems contradictory.
The stock market seems to be indicating that we will have a strong and quick economic recovery (likely a "V" recovery). This can be inferred in a variety of ways. One way would be to assess the S&P500's current price level of 1000, in which we can see that it is pricing in a market PE of 20 to a 2009 operating earnings estimate of $50. As well, this would equate to about 13x a 2010 operating earnings estimate of $75. Of course, one can argue whether the "As Reported" figures should be used, which would generate an even greater earnings multiple.
As I have indicated previously, I believe this market rally off the March lows of 666 is a Bear Market Rally - meaning by definition that a low below 666 will be forthcoming. I'll be further addressing this issue shortly.
The stock (and other markets) rally since mid-March appears to me to be very "speculative" in a variety of ways. One need not look too far to see many disconcerting aspects of this rally.
Since the stock market seems to be "pricing in" a very significant, and lasting, economic recovery, there will likely be significant repercussions should one not materialize. These repercussions would likely entail a significant decline.
Perhaps the main question should be whether a strong economic recovery is fundamentally assured to the extent the stock market seems to be indicating.
SPX at 982.3 as this post is written
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