During the late cycle, earnings growth is typically slowing but still positive while interest rates are rising—a combination that usually results in lower stock valuations. But while rates have been rising, earnings growth remains strong and, in fact, has gotten stronger in recent months.
Why is the CAPE so high? Nine years into the — secular bull market the CAPE was at 15X, and 9 years into the — bull it was at 20x. One is a continuation of the current secular bull market; the other is a valuation-driven decline in market growth.
But so far, there is no evidence that this is the case. There are different ratios that can be used to determine how healthy a company is.
Nevertheless, I think this is a good model to keep handy for strategic asset allocation purposes, and conceptually I think the idea makes sense, in that an expensive starting point acts as a headwind for future returns, while a cheap starting point creates a tailwind.
But against the backdrop of robust earnings growth and a tightening-but-not-too-fast Fed, I would view that as an attractive buying opportunity. Reconciling the 2 roadmaps The way I reconcile the different potential outcomes beyond — is by recognizing that valuations are much higher today than they were at this point in the previous 2 secular bull markets.
For me, though, the high valuation across all asset classes is and will likely remain a big headwind for the markets for the foreseeable future. A company with an operating margin of 0. Also, the earnings report released by a company during its quarterly earnings press release is analyzed by investors who look to ascertain how much revenues, expenses, and profits a company made.
Next steps to consider.
He joined Fidelity in as a technical research analyst. Stocks Key takeaways The stock market has traded sideways since late January, a condition that could persist for weeks to come.
A stock analyst may be looking to compare the operating profit margin of two competing companies, by looking at their income statements. The reason for the acceleration and subsequent drop-off is the fact that by early the CAPE had fallen to 11X, predicting an outsized CAGR over the subsequent 10 years.
Similarly, the CAPE model did not predict the low returns of the s, because valuations were not high enough during the s to produce such an outcome. Technical stock analysis is effective only when the price trend analyzed is influenced by supply and demand forces. From a historical perspective, starting valuation levels have had little bearing on future returns in the short to medium term.
The CAPE was indeed high during the s 25X at the secular top and, therefore, directionally correct in predicting the weak returns a decade later, but it was not high enough to capture the magnitude of the very poor returns of the s. In other words, have stocks successfully retested their early February low and launched the next up-leg in this epic 9-year-old bull market?
But for now the 2 roadmaps agree that the bull market could continue into The financial statement of a company can also be compared to that of one or more other companies within the same industry.
Is the bull run done?A historical analysis of prior secular bull markets suggests that the current bull market could continue in the years to come. One counterargument against this rosy secular outlook is that, over the long term (at least 10 years), high starting valuations tend to lead to lower future returns.
That. In-depth market analysis, real-time stock market data, research and earnings from killarney10mile.com Contact Stocks CNBC NEWSLETTERS.
Get the latest news and analysis in the stock market today, including national and world stock market news, business news, financial news and more. Stay on top of the changing U.S. and global markets with our market summary page. Dive deeper with our rich data, rate tables and tools.
msn back to Round Out Your Large-Cap U.S.
Stock Fund. Marketwatch summary - Overview of US stock market with current status of DJIA, Nasdaq, S&P, Dow, NYSE, gold futures and bonds. Follow the stock market today on TheStreet.
Get business news that moves markets, award-winning stock analysis, market data and stock trading ideas.Download