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Prophesying Profits.
"Returns in 2019 were almost entirely driven by multiple expansion (trailing P/E +12%)", BofA's Savita Subramanian wrote, in BofA's official year-ahead 2020 equity outlook. "Our 3300 S&P 500 target and $177 2020 EPS estimate imply returns solely from EPS growth".
That pretty much says it all. We've obviously spent a ton of time in these pages discussing the extent to which this year's gains in equities were down to investors' willingness to pay more for a dollar of earnings. We've also sugg
Tends to be all about rates. In the past rates could come down a lot. Now, with rates this low it will be difficult. One could argue the markets have not priced in these low rates but that could be because either they will revert or they signal slower growth and/or pricing power (even with the CB induced distortions).
It sure will be interesting and we have an election ………………
Using past extremes in the S/P 500 P/E (link below) it appears that we have a lot further to run.
https://www.multpl.com/s-p-500-pe-ratio
The current environment is ‘somewhat’ similar to the 1999 Y2K scenario where the Fed pumped the market in fear of a year 2000 computer implosion.
https://nypost.com/1999/12/03/the-federal-reserves-y2k-paranoia/
The S&P 500 CAPE ratio shows us near 1930, black Tuesday levels though. I would suspect there is a good chance the market will continue higher. Everyone is waiting for real QE to start, so it might very well be what we are seeing is just the ‘repo’ warm up.
https://www.multpl.com/shiller-pe
It’s crystal clear that the Fed is pumping the market and will run the economy hot. S&P 500 at 3500 or higher is a real possibility in the next six months. I ‘ll say it because no one else will — Stock earnings don’t matter, only the Fed matters!