Stock Market Valuation

A -post collection

A pro-cyclical correction and regime change

What is happening in the markets now. Change is sometimes uncomfortable. It’s been too long since we have had a correction, so one was due. We are off more than 5% from the recent high. A 5% correction is a must and needed event to take the speculators out. We typically get two corrections of this size per year. Interestingly, it has been over 400 days since we have had one. Good opportunities begin to present themselves upon these downlegs, but a 10% or more correction could clearly be in the cards given the extent of this previous move. That said, there is already quite a bit of consternation about this sell off and it did seem as though this was already feared. That usually

Read more

S&P 500 Sales & Earnings update

As Q3 Earnings season winds down, we provide a quick update on how the various sectors fared on Sales and EPS results. 91% of S&P 500 companies have already reported, so at this point we have a pretty good indication of how things are going to settle out. Overall, the quarter was pretty impressive with 55% of companies beating Sales estimates and 76% of companies beating Earnings estimates. The standouts on both Sales and Earnings were Technology and Financials, with 91% of Tech companies beating Earnings estimates and 84% of Financials beating Earnings estimates. The laggards were Telecom Services and Materials on both Sales and Earnings. See below a table which ranks the sectors from best to worst on both Sales (left) and Earnings

Read more

Of valuations

Not that I want to be the one spinning anything in equities at this point as positive, but, if you look at S&P valuations(courtesy bloomberg) based upon two particular metrics, you find that on a price/book AND a price/cash flow(trailing) you do NOT find overvaluation. In fact, if you consider the price/cashflow metric alone, it appears relatively inexpensive. Next, if you look at both trailing PE and estimated PE, the valuation falls into a mid range. But, this is NOT the case if you look at trailing Price/ebitda. In this case, it shows extreme overvaluation. One last thought, especially as it relates to the P/Book ratio, this metric seems at odds with the continued profit margin strength.

Read more