Happy St. Pat’s Day
Ever wake up in the middle of the night and wonder if you closed the sunroof? This guy, in addition to everyone else around here in the D.C. area kind of felt like we had seen the end of snow. Alas, we got one of the deepest snows of the season (based on my very unscientific “how much did I have to shovel” index).
Well, we had a pullback in the markets which the popular media made everyone painfully aware of. So what happened? Read on, BUT, make sure to read to the end for something REALLY important.
Russia, Crimea, China, Navy SEALs’ take-down of a tanker in the Mediterranean, commodities (food and copper) prices on the rise… you name it. But I think it’s just all a bunch of bunk. Unless there is a significant escalation of tensions, or a harsh round of sanctions that impacts the global economy, it seems unlikely we’ll experience any long-lasting turmoil in financial markets.
Geopolitical instability usually creates anxiety among investors but we’ve seen this story before. As I write today, the Dow, S&P 500 and the NASDAQ are all UP just shy of 1%.
More thoughts on the current market conditions are below. But first, here are how the big indices fared for the last week.
How Expensive is the Market?
Below is a chart from the latest J.P. Morgan Guide to the Market. As you can see, the forward P/E ratio of the S&P 500 index stood at 15.4x on Dec 31st of 2013. The two previous highs are noted too – in October of 2007 the S&P 500 was trading at 15.4x and in March of 2000 it was trading at 25.8x. The higher the P/E ratio, the more expensive the market.
It’s just a data point. But when I hear the talking heads on TV pontificating about a bubble, it makes me wonder what metrics they are using to claim that…because the “E” in the P/E ratio is EARNINGS. And in case you missed it, the earnings reports from last quarter were pretty damn good.
Additionally, Bespoke points out in their weekend report that the S&P 500’s ten largest market-cap stocks in March of 2000 had an average P/E ratio of 62.6x. Cross reference the J.P. Morgan chart below and see the 25.8x ratio mentioned above around the same time. Today, the ten biggest S&P 500 stocks have an average P/E ratio of 16.1x which is a lot closer to the December, 2013 P/E of 15.4x.
Finally – the Chart That’s Really Important This Week.
This chart will explain the lack of productivity this week. Note that it’s not filled in because I won the 2013 MWM Bracket for Charity contest and I’m not sharing my picks! Want to play? It’s free and we donate money to the 1st, 2nd and 3rd place finishers’ favorite charity. Reply to this email to join – Brittany will get you all the details.
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David B. Armstrong, CFA
President & Co-Founder
Dave got into the industry when he discovered his passion for finance in his mid-20’s. He’s a combat veteran and served as an officer in the United States Marines Corps on both active duty and in the reserves, retiring at the rank of Lieutenant Colonel. While serving on active duty, Dave was unable to spend money on deployments, so he became a self-taught investor. Along with a few bucks cash as a bouncer, his investing performance grew to be good....
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Please remember that past performance is no guarantee of future results. Different types of investments involve varying degrees of risk, and there can be no assurance that the future performance of any specific investment, investment strategy, or product (including the investments and/or investment strategies recommended or undertaken by Monument Capital Management, LLC [“Monument”]), or any non-investment related content, made reference to directly or indirectly in this blog will be profitable, equal any corresponding indicated historical performance level(s), be suitable for your portfolio or individual situation, or prove successful. Due to various factors, including changing market conditions and/or applicable laws, the content may no longer be reflective of current opinions or positions. Moreover, you should not assume that any discussion or information contained in this blog serves as the receipt of, or as a substitute for, personalized investment advice from Monument. To the extent that a reader has any questions regarding the applicability of any specific issue discussed above to his/her individual situation, he/she is encouraged to consult with the professional advisor of his/her choosing. No amount of prior experience or success should be construed that a certain level of results or satisfaction will be achieved if Monument is engaged, or continues to be engaged, to provide investment advisory services. Monument is neither a law firm nor a certified public accounting firm and no portion of the blog content should be construed as legal or accounting advice.
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