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Retired chief investment officer and former NYSE firm partner with 50 plus years experience in field as analyst / economist, portfolio manager / trader, and CIO who has superb track record with multi $billion equities and fixed income portfolios. Advanced degrees, CFA. Having done much professional writing as a young guy, I now have a cryptic style. 40 years down on and around The Street confirms: CAVEAT EMPTOR IN SPADES !!!

Wednesday, July 13, 2016

SPX -- Daily (2152)

The post Brexit rally since late Jun. has brought the SPX to record closing highs and has extended
the uptrend underway since Feb. of this year. The B of E stands prepared to provide additional
liquidity as does the ECB. The Fed has been standing down from further tightening and doubtless
stands ready to provide dollar swap lines if and as needed. The Brit. Gov. may be fashioning
fiscal stimulus plans, the Clinton platform has stimulus plans and a Trump presidency might lay
out trickle down tax cuts. Short rates and bond yields remain near historic lows. US forward
economic indicators have been positive since Feb. and all the happy talk about monetary ease
and new fiscal stimulus programs has for now relieved the market of its dependence on rising oil

I have raised my fair value model, based on the longer term earnings trend and earnings plowback
percent, to SPX 1990 -2120 to stand through mid - 2017. SPX net per share must rebound sharply
from below $100 to near $130 by the end of 2017, and plowback, now suppressed by weak earns.
must rebound. The SPX has sailed above fair value primarily because inflation has remained so
low and because bonds are regarded as uncompetitive. There is a wide reservoir of patience for
earnings to recover.  SPX Daily

Out of it all, it is super low interest rates and inflation that has contributed the most to make
SPX behavior haywire by historic standards. The p/e ratio reflects supreme investor confidence
that all will wind up to the good. (There is also the small matter that no one pays equities
managers for having very large cash ratios when there is any life in the market.)

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