{"id":9003,"date":"2019-05-19T13:56:01","date_gmt":"2019-05-19T13:56:01","guid":{"rendered":"https:\/\/fundamentalis.com\/?p=9003"},"modified":"2019-05-19T13:56:01","modified_gmt":"2019-05-19T13:56:01","slug":"sp-500-has-experienced-pe-compression-the-last-16-months-what-now","status":"publish","type":"post","link":"https:\/\/fundamentalis.com\/?p=9003","title":{"rendered":"SP 500 Has Experienced &#8220;PE Compression&#8221; the Last 16 Months &#8211; What Now ?"},"content":{"rendered":"<p>This blog\u00a0<a href=\"https:\/\/fundamentalis.com\/?p=8970\">post<\/a> on the credit markets on May 5th, gave the first reference to the SP 500 being flat over the last 18 months.<\/p>\n<p>Let&#8217;s flush out the numbers a little further:<\/p>\n<ul>\n<li><em><strong>1\/26\/18 high tick:<\/strong><\/em> 2,872.87<\/li>\n<li><em><strong>9\/21\/18 high tick:<\/strong><\/em> 2.940.91<\/li>\n<li><em><strong>5\/1\/19 high tick:<\/strong><\/em> 2,954.13<\/li>\n<li><em><strong>5\/13\/19 close:<\/strong><\/em> 2,859.53<\/li>\n<\/ul>\n<p>Friday, May 13th&#8217;s, close 12 points below the January 26th, 2018 high tick indicates that &#8211; despite the volatility &#8211; the SP 500 has gone nowhere for 16 months despite the fact that SP 500 earnings continue to rise, albeit it at a slower rate of increase than last year.<\/p>\n<p>What&#8217;s interesting is that the 10-year Treasury yield was close to 3% in late January &#8217;18, versus it&#8217;s 2.40% level today, while the 30-year Treasury was also trading at 3% in late January &#8217;18, headed to 3.20% in February &#8217;18, versus its close on Friday at 2.82%.<\/p>\n<p>Thus &#8211; given the change in interest rates and the subsequent SP 500 earnings growth &#8211; the case can be made the SP 500 has gotten relatively cheaper over the last 16 months, albeit not dramatically so.<\/p>\n<p><em><strong>What about sentiment ?\u00a0<\/strong><\/em><\/p>\n<p><a href=\"https:\/\/fundamentalis.com\/?attachment_id=9006\" rel=\"attachment wp-att-9006\"><img loading=\"lazy\" decoding=\"async\" class=\"aligncenter size-medium wp-image-9006\" src=\"https:\/\/fundamentalis.com\/wp-content\/uploads\/sentiment51719-264x300.png\" alt=\"\" width=\"264\" height=\"300\" srcset=\"https:\/\/fundamentalis.com\/wp-content\/uploads\/sentiment51719-264x300.png 264w, https:\/\/fundamentalis.com\/wp-content\/uploads\/sentiment51719-768x871.png 768w, https:\/\/fundamentalis.com\/wp-content\/uploads\/sentiment51719.png 811w\" sizes=\"auto, (max-width: 264px) 100vw, 264px\" \/><\/a><\/p>\n<p>&nbsp;<\/p>\n<p>Sentiment has turned sharply negative given the Bespoke data above, from Bespoke&#8217;s Weekly letter dated 5\/17\/19.<\/p>\n<p><em><strong>Summary \/ conclusion:<\/strong><\/em>\u00a0PE &#8220;expansion&#8221; is the grist of longer-term bull markets as we saw in the 1980&#8217;s and 1990&#8217;s as SP 500 earnings grew, but the market multiple kept rising with that earnings growth as interest rates fell, Communism faded, gradual deregulation of the US economy occurred and Technology as a productivity-driver grew in importance starting in the early 1980s.<\/p>\n<p>The &#8220;earnings recession&#8221; has been avoided so the fact that the SP 500 has just treaded water over the last 16 months, means that &#8211; when the SP 500 starts to sniff out faster earnings growth, and like a beach ball being held under the water, the SP 500 should eventually break out to an all-time-high when meaningful SP 500 earnings growth returns.<\/p>\n<p>Expected 2019 EPS growth for the SP 500 is just 3% which I believe is too low. That number should be higher by year-end 2019, but to be frank with readers, I thought 2018 would be a far better year than the -4.35% that we saw the SP return when we started 2018 and were looking at +20% SP 500 earnings growth.<\/p>\n<p>Take any forecast with a healthy skepticism, but I expect the SP 500 will see meaningful new highs in 2019.<\/p>\n<p>Thanks for reading.<\/p>\n<p>&nbsp;<\/p>\n<p>&nbsp;<\/p>\n<p>&nbsp;<\/p>\n<p>&nbsp;<\/p>\n","protected":false},"excerpt":{"rendered":"<p>This blog\u00a0post on the credit markets on May 5th, gave the first reference to the SP 500 being flat over&hellip;<\/p>\n","protected":false},"author":2,"featured_media":0,"comment_status":"open","ping_status":"open","sticky":false,"template":"","format":"standard","meta":{"_jetpack_memberships_contains_paid_content":false,"footnotes":""},"categories":[140,150],"tags":[],"class_list":["post-9003","post","type-post","status-publish","format-standard","hentry","category-pe-expansion-contraction","category-stock-market-sentiment"],"jetpack_featured_media_url":"","jetpack_sharing_enabled":true,"post_mailing_queue_ids":[],"_links":{"self":[{"href":"https:\/\/fundamentalis.com\/index.php?rest_route=\/wp\/v2\/posts\/9003","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/fundamentalis.com\/index.php?rest_route=\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/fundamentalis.com\/index.php?rest_route=\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/fundamentalis.com\/index.php?rest_route=\/wp\/v2\/users\/2"}],"replies":[{"embeddable":true,"href":"https:\/\/fundamentalis.com\/index.php?rest_route=%2Fwp%2Fv2%2Fcomments&post=9003"}],"version-history":[{"count":6,"href":"https:\/\/fundamentalis.com\/index.php?rest_route=\/wp\/v2\/posts\/9003\/revisions"}],"predecessor-version":[{"id":9010,"href":"https:\/\/fundamentalis.com\/index.php?rest_route=\/wp\/v2\/posts\/9003\/revisions\/9010"}],"wp:attachment":[{"href":"https:\/\/fundamentalis.com\/index.php?rest_route=%2Fwp%2Fv2%2Fmedia&parent=9003"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/fundamentalis.com\/index.php?rest_route=%2Fwp%2Fv2%2Fcategories&post=9003"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/fundamentalis.com\/index.php?rest_route=%2Fwp%2Fv2%2Ftags&post=9003"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}