Index (Symbol) |
S&P 500 (.SPX) |
Price |
2237 |
Data is as of |
March 24, 2020 |
Sharek’s Take |
|
One Year Chart |
![]() In this chart, quarterly profit growth is along the bottom, with Estimates for the next two qtrs bottom/right. These numbers from the last 4 qtrs aren’t special. And the qtrly Estimates look overly optimistic. There’s no way the S&P makes $170 this year. The market’s P/E is 13 now. It was 20 when I did this chart last qtr. So stock prices are low. In the Annual Profits column, note profits have been up every year since 2011. That’s very good. We will no-doubt have lower profits in 2020. |
Earnings Table |
![]() Notice that during the last four qtrs the S&P 500 wasn’t growing profits very fast. Over a long period of time profit growth is often correlated to stock growth. Sometimes profit growth = stock growth. So these qtrly profits for the S&P 500 meant very low expectations for growth in the Vanguard 500. Annual Profit Estimates have decreased a bit in each of the last three qtrs, but I don’t have a clue as to what the S&P will earn this year. It could be $120 (not $169.61). We all know company profits will be poor this year. What’s important now is 2021. Next year’s economy should be strong. Notice in this table I’m comparing quarterly profits year-over-year. So if profits are poor the next four qtrs, it makes next year’s comparisons easy. So in the Summer of 2021 we could be looking at headlines of 20% to 40% profit growth — and a bounce back in the economy. Qtrly profit Estimates for the next 4 qtrs are 1%, 2%, 3% and 3%. Again these are too high. Analysts haven’t updated their information (obviously). |
Fair Value |
![]() Since interest rates are low, there’s not much competition for your money from bank CDs (or bonds in general). Stocks are more attractive than bonds right now, and the market deserves a higher P/E than normal. This thesis is from Jeremy Siegel, Professor of Finance at the Wharton School and Author of Stocks for the Long Run. The market’s P/E is currently 13. But that assumes the companies within the S&P 500 will earn $169.61 this year. I highly doubt that. What IS possible is the S&P might make $170 next year. And I think a P/E of 18 is fair. So maybe the 2020 estimate of 3053 is more accurate for 2021, and we lose a year of growth. I think there’s huge upside now with stocks so low. |
Bottom Line |
![]() I’m biased, but I think it’s better to be in stock right now. Lots of companies are having troubles paying bills with no income. Rents are due, and that might bring down the commercial real estate space. People work from home now. That could lead to banks holding bad loans. The energy market is also poor with travel down. Some retailers will go bankrupt. According to my analysis, the market (measured by the S&P 500) is extremely undervalued. But I think this is a stock pickers market. Know what you own. The stocks that lead the market higher are likely companies thriving in the current environment. People around the world are spending almost all their time at home.
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