64 replies to this topic

[Rich C]

The second estimate of Q3 GDP came in at 3.3% and GDPNow estimate for Q4 is 3.3, which would give us a +2.7% year.  The Fed hiked rates by a quarter of a point last week leaving the Fed Funds rate at 1.4%.  The Fed indicated it plans 3 more rate hikes in 2018, probably 1/4 point each (my guess).  With the market surging up in advance of earnings, the P/E on the S&P 500 moved up to 25 from 24.2, leaving it in moderately overvalued territory.  However, the corporate tax cut should raise earnings next year by 10%, which should moderate the valuation.

 

On a long term basis, the bull market continues.  

[Rich C]

There was little change in the long term conditions from last month, despite a significant run up in the S&P.  The 12 month trailing GAAP P/E actually fell a little, from 25.0 down to 23.5.  How did that happen?  In the first month of a quarter, 100% of the companies have reported earnings for the previous quarter being reported, and a quarter that is now 5 quarters old rolls off the back and is replaced on the top of the string with the latest (usually better) quarter.  That can represent quite an improvement, losing a low number and replacing it with a higher number.  That is what happened in this case.  The 23.5 is moderately overvalued compared to my trimmed 30 year average of the 12 month trailing GAAP P/E of 19.  I like this measure of the P/E as opposed to the Wall St. usual of the "forward P/E", which is just a guess, and I would not even call it an educated guess.  The guess is based on an assumption that most of the factors in the economic system will remain the same.  Many times that is a good assumption, but there is no warning when the assumption turns out to be wrong.  Therefore, to me it is useless.  Heck, I can guess as well as those guys, let's see, GDP was +2.5% last year, we have tax reform, so I'll guess 3.0% this year.  That was easy.  The 12 month trailing GAAP P/E numbers are all facts which tell me what the P/E factually is, no guessing.  You just need a different baseline to compare it to instead of Wall St.'s 16, which is their forward average, so I got the data from the S&P website and figured it out, and they only show 30 years of quarters.  I had to trim out the aberrations of the major recessions like 2000-2002 and 2008-2009. 

 

GDP growth is steady and interest rates are still benign.

 

The chart looks good, and as far as I am concerned, the long term bull market rolls on.

Edited by Rich C, 17 January 2018 - 11:35 AM.

[Rich C]

Well this has been exciting, the first 10% correction in 2 years!  The recovery from it has been quick (too quick?).  From a long term perspective, I don't see that much has changed.

 

Yes, interest rates are rising, slowly, but not to levels that should impact corporate America.  At the individual level, even the small rise in rates may have a negative effect on housing due to the increase in home values the last 5 years.  The valuation of the market is rich, but it always is in the late stages of a long bull market (its rich, but not extreme).  The market continues to move upward in the same bullish channel it has been in since 2010 (a good sign), but it is near the top of the channel and extended above the 50-month moving average, making it somewhat vulnerable to more corrective activity.

 

Bottom line to me:  It's still a bull market.

[Rich C]

The Fed hiked the funds rate a quarter of a percent today to about 1.6%, but longer dated treasuries did not react, nor did the stock market.  The second revision of GDP for Q4 was 2.5%, a bit light, while the overall growth for 2017 was also 2.5%.  The trailing 12 month GAAP PE on the S&P 500 was 25, down a bit from 25.6 last month.

 

The bull market reached 9 years old this month, and the long term bull market continues!

[Rich C]

The long term valuation level PE (trailing earnings) has improved (come down) the last couple of months, currently at 24.3 using the 4 quarters of earnings with Q4 being the most recent.  This is relative to my 30 year trimmed average of 19.  RSI has come down to a still overbought 70, but from a nosebleed 90 in Jan.  Price is in the middle of the channel we have been in for most of this bull market.  Q4 GDP was revised up in the third estimate, to 2.9%, closing out 2017 at 2.6% growth for the whole year.

 

The bull market rolls on!

[Rich C]

The 12 month trailing GAAP PE fell to 23.6 this month, with earnings rising faster than stock prices, and transitioning to Q1 data as the latest quarter.  An older, lower earnings quarter has fallen off.  RSI on a long term chart is overbought at 70 still.  Q1 GDP first estimate came in at 2.3%, not great, but good for a Q1 number.  The bond market has moved longer term rates up a bit, but just a bit.  I see some indigestion, but no bear market.

 

Long term, its still a bull market.

[Rich C]

The 12 month trailing GAAP PE fell again in June to 22.9 and has moved down from moderately overvalued to mildly overvalued.  This is due to excellent earnings coming in, and a little market weakness.  RSI on the long term S&P chart moved back up a little to 72, while MACD continues its sideways movement.  The second estimate for Q1 GDP was 2.2% growth, down a hair from the first estimate, but still a good number.  The Fed hiked the funds rate as expected, and sounded hawkish so the bond market priced in the possibility of a 4th rate hike this year. 

 

The ECB will end its QE by Dec., but will not hike rates this year.  I am surprised that with the hikes to the Fed Funds rate, that longer term bonds have not gone up as much.  I suspect that with the abnormally low rates in Europe, many of their investors are buying US bonds, providing demand and keeping bond prices high and yields low.  That is not going to change for a while.  I wonder if our yield curve could invert, and it not forecast a recession this time, because of abnormal monetary policy across the Atlantic?  With inflation running 2%, our 30 year bond should yield more than 3%.  That's screwed up IMO. 

 

Long term, its still a bull market.

[Rich C]

For July, the 12 month trailing GAAP PE on the S&P rose a bit to 24.2, moderately over-valued.  This was based on the recent rally, and using the 4 quarters with Q1 (100% of companies reported) being the most recent.  GDPNow as of July 16 projects Q2 GDP of +4.5%, a good strong number.  Interest rates are steady from last month.  There has not been much change in the market situation over the last month.  However, tariffs have taken effect against China, with retaliatory tariffs hitting some of our companies.  Trump has said he intends to expand the tariffs and China has vowed to retaliate.  Will cooler heads prevail?  One can only hope.

 

Conclusion:  The bull market continues.

[AChartist]

gdp just measures price inflation, I think stock mkt too which is the circular reference of price inflation double counting price inflation.

 

everywhere I go business is slow, high end restaurants so much slower. I guess car sales are dead. Pre-election debt overhang overwhelming?

 

there can be enough price inflation in non discretionary antitrust monopolies to cover up alot of contraction, I guess, all fake math stuff.

 

I guess if long term cycles are up for several years up to seven is a lot of price inflation forecasted. To replace every chinese gadget and

 

trinket is a long lead time at higher cost structure it will be a tough adjustment and adjustment to do with less unnecessary wasteful stuff.

Edited by AChartist, 05 August 2018 - 08:48 AM.

[Rich C]

Q2 GDP came in at 4.1%, a good reading.  Interest rates are steady in the US, while the EU is set to begin tapering their QE program in Sept. and end by Dec.  The 12 month trailing GAAP P/E on the S&P 500 is 23.1, down a bit from last month since we picked up the Q2 earnings which were excellent, and dropped off a much lower earning quarter from the past.  The P/E of 23/1 compares to my 30 year trimmed average PE of 19, moderately overvalued.

 

Geo-political risks are rising, particularly the trade war.

 

Price action supports the thesis that we remain in a long term bull market, see the blog (link below) for more information and the long term chart.