Stocks Keep Falling, But Key P-E Models Say They're Cheap

[charrison]

Corporate profits are hitting record highs while the stock market is down for the year. That can mean only one thing: stocks are getting cheaper.
The 12-month trailing P-E ratio for the S&P 500 hit 17.7 on Friday, the lowest since 1996. That's based on S&P's estimate of $16.21 a share for the quarter ending June 30, which is up from a $15.87 preliminary reading for the quarter ending March 31.

The valuation on the S&P 500 isn't a historical low, but it's well below the highs of the bubble years, when it soared above 25. It hit 45 in 2002 as earnings were sinking.

In fact, the S&P's P-E ratio, based on operating earnings, is below the average of 20 going back to 1988, but still above the average of 15.6 going back to 1935.

"It's hard to characterize the market as cheap," said Nick Bohnsack, an analyst for International Strategy and Investment. "We think stocks are fairly priced."

Poor Market Timer

Watching the market's P-E ratio is a poor timing tool. A market that is cheap can get a lot cheaper. And a market that seems overpriced can rally for years.

"It's more of a directional thing," Bohnsack added. "When measures get to extremes, there's a tendency for those measures to revert to the mean. When they get blown out in one direction, there's room for directional change."

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It does look like a good time to buy.

 

[BDawg]

A low market is just a chance to purchase bargains.

 

[alchemize]

My bond funds have done decent, but they were short term only. Market is going to waffle until the election is over. Tank if Kerry wins, Rally if Bush wins, then watch the economy again.

 

[dmcowen674]

Originally posted by: alchemize

Market is going to waffle until the election is over. Tank if Kerry wins, Rally if Bush wins, then watch the economy again.

We shall have to visit your words here after the election. Oh and Robert says Hi.

 

[freegeeks]

buy time

I was waiting for some opportunities to dump some cash

 

[alchemize]

Originally posted by: dmcowen674

Originally posted by: alchemize

Market is going to waffle until the election is over. Tank if Kerry wins, Rally if Bush wins, then watch the economy again.

We shall have to visit your words here after the election. Oh and Robert says Hi.

Sure thing, let's do so I re-read my statement, let me further clarify it

1) The market will waffle until the election is over
2) If Kerry wins (or the polls show clearly he is going to win decisively), it will tank.
3) If Bush wins (or the polls show clearly he is going to win decisively), it will take rally.
4) Once whoever wins, then the market will resume watching economic indicators, oil prices, etc. and quit looking at politics

Who is Robert?

 

[Caminetto]

Market is going to waffle until the election is over. Tank if Kerry wins, Rally if Bush wins, then watch the economy again.

You've got it backwards.
The facts that the economy rallied when dems won and tanked immediately after Bush took office, says much. Market is largely a reflection of people's faith in government and their belief in the health of the nation.
If the Bush numbers are good this fall - Hold.
If the Kerry numbers are good this fall - Buy.

 

[Train]

Originally posted by: Caminetto

Market is going to waffle until the election is over. Tank if Kerry wins, Rally if Bush wins, then watch the economy again.

You've got it backwards.
The facts that the economy rallied when dems won and tanked immediately after Bush took office, says much. Market is largely a reflection of people's faith in government and their belief in the health of the nation.
If the Bush numbers are good this fall - Hold.
If the Kerry numbers are good this fall - Buy.

no you've got it backwards, the Market was already on an upswing when Clinton took office, and was on a downswing when he left.

 

[shiner]

Originally posted by: BDawg
A low market is just a chance to purchase bargains.

True that....I've been sinking quite a bit extra in the market lately.