Valuations

Stock markets across much of Europe are priced cheaply enough that investors might need very little incentive to get in, attempting to reap respectable returns.

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“Of Special Interest” takes a look at sector valuations through the lens of our GS Scores.

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“Of Special Interest” this month evaluates several stock market valuation techniques. Newfangled valuation techniques do not always lead to better results.

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Market in gear, with almost all market indices hitting new highs in tandem. Would be unusual for a market correction with this type of uniformity.

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This month’s “Quantitative Strategies” section presents a preliminary look at some long term trends in Valuations and Profit Margins for specific industry groups.

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S&P Normalized valuations are already in the zone that have defined many important bull market tops.

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From our perspective as disciples of Normalized EPS, the entire bull market to date has come from P/E expansion. However, that stands to change as global Normalized EPS are again on the rise.

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Now that the election is over and QE2 in the works, resist the temptation to “sell the news.” We expect to see the market rally through the end of the year. Sentiment still benign and valuations still attractive.

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A look at Asian valuations show China to be fairly valued (neither overvalued nor undervalued), but there are other attractive (cheap) ways to play consumer stocks in Asia.

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August turned out to be a very volatile month, not the “doldrums” that many investors would have wanted to see during this traditional summer vacation month. Budding optimism that had developed in investors back in April has now apparently been completely washed out by the poor August performance.

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Despite our still (cautiously) bullish outlook, historical P/E levels which once provided support to the stock market are expected to now offer resistance as the market moves higher.

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Doug Ramsey looks at the history of “severe” market corrections (declines of 12% to 18%), and contrasts that with true bear markets.

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Stock market valuations no longer cheap, but they are also not yet truly expensive. Eric Bjorgen isolates several valuation measures to show just where they rank historically

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In this month’s “Of Special Interest”, Eric Bjorgen looks at the cyclical nature of P/E ratios. The normalized P/E ratio follows an expansion/contraction cycle that has been repeated five times since 1926, but the interesting thing is that the cycles have lengthened significantly over time.

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There is a potential valuation ceiling confronting U.S. stocks. 2002 S&P valuation lows may be the point that this cyclical bull market tops out.

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Following a strong September, October may be a little weaker. However, readers should use any October scare to buy equities in anticipation of strong end to 2009.

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Given the very long-term ebb and flow of market valuations, it is hard to believe that—with old valuation norms finally and decisively violated to the downside—the market will spring back to anything like the valuations seen in the middle of this decade.

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Lots of people spinning economic and market statistics to cast doubt on the recovery and stock market rally. Doug Ramsey goes point by point to make an honest assessment about the current conditions. Things do actually look pretty good right now!

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Valuation metrics using S&P 500 aggregate earnings can be skewed by large losses. Building a profile of valuations by looking at median valuations, or the distribution of valuations, can be helpful to avoid this problem.

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Superior performance of foreign stocks of late is likely only the preamble to what the rest of the cyclical bull market will look like.

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