Earnings Matter: S&P And Stock Market Investing
Keywords: index funds, mutual funds, investing
The S&P 500 is up about 7.5% thus far this year. That’s a good return for just over six months. Will it keep going up? Consider this. The earnings of the S&P 500 companies are expected to grow by about 5% in 2007, according to a leading Wall Street brokerage firm. That means if the market was fairly valued at the beginning of 2007 and there were no big changes as to how investors think about the market, the S&P should only go up by 5% in 2007. Hence, game over. Come back next year.
But wait! Let’s examine each of the above assumptions. Was the S&P fairly valued at the beginning of 2007? Well, for the 12 months ended June 2007, it’s up 22%, so it had a pretty good run in the second half of last year and considering that 2006 was the fourth year of the current economic expansion, it’s likely the S&P was around fair value at the beginning of 2007. Okay, but doesn’t the market discount the future? And aren’t all the Wall Street analysts talking about 2008 earnings? Yes to both (although December 31, 2008 is 18 months away, so maybe there’s some uncertainty). 2008 S&P earnings are projected to grow by 7.5%. Amazing, the same percentage the S&P is up this year. I could end this report right now but I think it’s a coincidence.
I don’t know how far into the future investors look or whether they’re looking at 2007 or 2008 earnings. Either way, though, there’s not much of a case to be made for further gains in the S&P unless theress multiple expansion. (The P/E multiple has to expand when stock prices grow faster than earnings.)
So, will P/E multiples expand and the S&P continue to go up? Depends upon what makes multiples expand. Common factors include accelerating earnings growth (I don’t think 5% to 7.5% qualifies), an improving economic outlook (balance of trade, energy prices, inflation), or a reduction in interest rates. The last one’s a two edge sword. If interest rates fall (the Fed cuts rates) because of declining inflation expectations, that’s bullish (along with an expanding economy that’s the goldilocks scenario). If the Fed cuts rates because the economy is slowing down, that’s not good. A Fed cut for good reasons appears unlikely.
Thus, the S&P is likely to be flat to down over the next few months, until earnings growth is ready to take it higher.
Bill Byrnes is a co-founder of MUTUALdecision (www.mutualdecision.com) A former investment banker and finance professor, he has been CEO, chairman and served on the boards of a number of public companies. Bill is a CFA with over 30 years investment experience.
Previous Articles Highlighter:
Filing Your Flood Damage Insurance Claim (1)
The first thing you should do after the water has been cleared from your home, call your insurance agent or company as soon as you can. If you can, have your name, policy number, and a phone number or e-mail address that you can be reached at handy when you call.
What Is A Mortgage Refinancing Home Equity Loan? (2)
The purpose of this type of loan should be to help you save money. To do so you should consider the implications of total interest costs, annual percentage rates and repayment period of your home equity refinance mortgage loan.
How Do I Get A Business Loan? A Business Plan Is The First Step (3)
Creating a solid business plan is the first step in answering the question: How do I get a business loan? Want to know about other ways to finance your business?
No Need For Concern With Bad Credit Student Loans (4)
All you have to do is research the number of options that are out there for private and federal student loans. If you spend some time with your school's financial aid advisor, you should know all you need to know about bad credit student loans.
Consolidate Loan Payments For College (5)
By going through this process, you can lower your payments by close to 60 percent, depending on the lender. Not only will you have one simple payment to make, but also you will only have to deal with one lender instead of several.
Dental Insurance Coverage - What Do You Really Need? (6)
that suits the insurer, because they get a lot less hassle and a good reputation. And in those cases, they are able to build a better business, because word of mouth from satisfied clients means that the dental insurance coverage they offer, without too many complaints, provided what was expected.
Greed And Fear: What Does It Take To Get Rid Of It? (7)
So why then does it take to so much emotion just to click a buy button and a sell button and watch the screen with numbers moving back and forth?
What Is Home Owner Insurance And Why Do You Need It? (8)
Obviously, the best thing about getting insurance quotes from online sites is that you will get numerous quotes all by filling out one application. Not to mention the fact that when you get several home owner insurance quotes you can then compare them for the best price.
Is A Debt Consolidation Loan For You? (9)
If you do take a debt consolidation loan, you need to study the small print as if your life depended on it, it does, and then be very careful. There's more help and advice on Debt Consolidation Loans, Credit Cards, Mortgages, Investing, Real Estate, etc.
Getting A Job In UK Banking (10)
Agency or direct At the start of your journey to find a perfect banking job you will usually be faced with 2 routes (although you can take both simultaneously). Whether you should use a recruitment agency to source suitable opportunities for you or go direct to financial institutions with your applications.
What Is Exit Planning? (11)
When do you plan to retire, and how much money will you need to live on after retirement? 2. How much is your business worth, in cash today?
Help, I'm In Debt. What Can I Do? (12)
Then, and only then, can you move forward with your life and "get out of debt" completely. Casey Markee is a consultant with nationwide debt management program provider Consumers Alliance Processing Corporation (CAPC).
What Are Your Options For Consolidating Your Debt? (13)
Unsecured personal loans mean that there is no collateral against the loan. This will result in your having to pay a higher interest rate, and you will most likely be given less time to pay the loan back.
Bad Credit Loans 'Set For Growth' (14)
Earlier this month, research carried out by the Financial Services Authority (FSA) indicated that a number of bad credit lenders offer "poor practice" to their customers. According to the FSA, findings about half of respondents investigated were unable to prove if their loan products were actually suitable for borrowers.
Interest Rates Rises 'Curb Desire To Spend' (15)
As a result, the financial services company claimed that the Bank should wait to judge the full impact of this month's base rate rise before taking the decision on whether to increase it again.
Capital Sees 'Record' House Price Growth (16)
He added: "We expect to see price growth in prime central London settle at 25 per cent by the year end". Mr Bailey also noted that over the course of June, the proportion of those looking to buy a home compared to the number of properties available decreased by some 5.5 per cent.
Guide To Accident Claims (17)
Since the majority of companies only allow a certain amount of time off sick before they stop paying you wages, this can lead to financial difficulties fairly quickly. However, thanks to the new legislations that were introduced to allow you to make an accident claim both easier and quicker, this need not be the case.
Selling Your Business - Groom Or Hire Your Successor (18)
He brings a unique perspective of analyzing this acquisition wearing two hats - one as a strategic industry buyer and the second as a disciplined financial buyer. It was quite instructive to watch the dual motivations at play during the visit.
What Mortgage Can You Afford (19)
These guidelines are often very flexible and a lot of times depend on your credit. For some, proving their monthly income is quite easy. If you have a straight forward income, whether salary or hourly, without any bonuses, you can show your pay stub as proof.
Types Of Investment (20)
Currently you are allowed to contribute 7,000 pounds each year with a deadline of April 5th. An ISA can be a mixture of stocks, shares, and cash. Individual savings accounts are available for any resident and ordinarily resident who is over 18 years of age.
Newer Articles Highlighter:
5 Ways To Obtain A Higher Credit Card Limit (1)
As long as there is no difference in price between paying by plastic or cash, you should always choose to use the plastic. This way, you will be deemed as a valuable customer by the credit card company.
Should Refinancing Your Mortgage Be In Your Future? (2)
However, if it has not started already, the day is coming when the fixed rate portion of your mortgage will soon be over. Once that happens, you can expect a jump in your rates because your payments will get a new interest rate.
Getting Out Of Debt (3)
Keywords: debt consolidation, debt management, iva, ivas, debt help Numerous factors get us into debt, some of these include the circumstances of the borrower, debt collection practices employed by creditors, benefit entitlements and the effect of court proceedings, but more importantly to consumers is how do you stop the spiral and get out of debt?
Is A Home Equity Loan Right For Your Home Improvement Plans? (4)
With a plain home equity loan, what you borrow is what you have available. You can't have anything more. Step two is to look at how you will be paying the contractors.
The Good, The Bad, And The Private Student Loan (5)
Keywords: student loans, private student loan A private student loan can take off some of the sting of collegiate expenses. Everyone knows how intimidating the cost of college can be, so it makes sense to look into as many types of loans as you can.
Student Consolidation - Making Your Loan Manageable (6)
All of your payments will be neatly tied together, thus allowing for a lower interest rate and less stress as you pay off your debt. When you consolidate student loans, you have to find a company that deals with loan consolidation.
Selling Your Own Home (7)
Every shopper is bound and determined to get the best deal in town. Do you honestly feel your price makes your house one of the best deals in town?
Discover Newly Launched Hedge Funds And Those Who Gained On Exit (8)
Its parent company (Amanda Capital PLC) is the first publicly listed private equity hedge fund of funds in Scandinavia. The company has investments in 24 different private equity funds and in three funds of funds managed by Amanda.
Saving Money Through Student Loan Consolidation (9)
This is especially true if you use the grace period to lock into a lower interest rate. If you have not found a job yet, this could be difficult to accomplish.
How School Loan Consolidation Can Save You Money (10)
You generally have 45 days before you are to begin repayment, so be prepared. Eventually, you might find you want a school loan consolidation. All students who are bound for college have different needs.
Run The Numbers Before Buying An Investment Property (11)
This includes advertising for a new tenant, cleaning, repainting, replacing carpet, etc. If you expect to have high tenant turnover, like next to a college campus, anticipate this to be a significant cost.
The Foreign Exchange Market (FOREX) Uncovered (12)
This is quite valuable because in Forex currency trading fluctuations are oftentimes just fractions of a cent. You can select your pair of currencies and your amount whether the market is moving up or moving down - and still make a profit.
Forex Broker - Choosing The Right Forex Broker (13)
These free accounts are just practice accounts and don't deal in actual real money. They are a good way to get to know what it's like to trade on the forex market and it's recommended that you try one of these accounts before you move onto the real thing.
What Are The Benefits In Obtaining Debt Consolidation Services? (14)
Are you finding it difficult to keep up with all your debts? If you answered yes to any of these 4 questions, then it's time to think about debt consolidation.
Asset Based Lending As A Financial Tool (15)
Buyout A buyout is the purchase of a controlling percentage of a company's stock. In a leveraged buyout (LBO), the acquiring company uses the minimum amount of equity to purchase the target company.
Andorra Tax Haven Introduces Capital Gains Tax (16)
'While there is a large disparity between Europe's top two tax havens - Monaco and Andorra - in property prices, the advantages of buying a property in Andorra, gaining residency and having no income tax far outweighs any capital gains taxes', they say, pointing out that Andorra prices are a quarter of those of Monaco's.
Andorra Property Prices Hit 2007 Ice (17)
'Given the tax advantages Andorra has', note the Andorra guide, 'A two and a quarter hour trip to the nearest international airport could be viewed as a small price to pay for those who will be saving substantial amounts of money in tax.
Tax Haven Property 2007 Gets An Icy Chill (18)
Andorra Residency As well as being a top ski destination, Andorra is also a tax haven, with many people moving to the country to benefit from her income tax free status.
Monaco Real Estate Prices To Overtake London Again? (19)
With property prices in Monaco the second highest in Europe and one bedroom apartments after closing costs starting at around a million Euros, longer term the shortage of property in Monaco will be helped a new island being built off Monte Carlo.
Taxes You Must Consider Before Passing On Your Properties To Your Heirs (20)
If you wish that your property should pass on to your heirs only after your death, you must take estate tax into account. Under US laws, an individual can gift property worth one million dollars in his/her lifetime without attracting any gift tax.
Permalink to Earnings Matter: S&P And Stock Market Investing