S&P 500 P/E is in pink. It is now at a 10 year low and has trended down for 6years.
yitbos
Posted on 06/27/2008 5:06:05 PM PDT by shrinkermd
Eight months after they peaked, stocks dropped to the threshold of a bear market, another signal of the mounting challenges that lie ahead for the economy, government and investors.
Friday's 106.91-point drop left the Dow Jones Industrial Average at 11346.51, down 19.9% from its October record, after it had fallen as low as 11297.99 during the day. At the day's low the Dow was down 20.2% from October. Investors typically consider a decline of 20% or more the mark of a bear market.
...Historically, the stock market bottoms before economic activity bottoms," says Paul Kasriel, an economist at Northern Trust bank. "This is not exactly a good omen, because the stock market doesn't appear to be bottoming."
Stocks and the economy are bound together in important ways. The stock market provides a signal of the outlook for earnings. Companies also turn to the stock market to raise money -- something many banks need dearly in the face of steep losses on loans. Falling stocks make it harder to raise capital.
...With one trading day left in the month, the Dow is now down 10.2% in June, the worst performance for the month of June since 1930
(Excerpt) Read more at online.wsj.com ...
what about mutual funds as in a 401?.....
It implies nothing about the future in itself. An index could gap up above the 20% decline level the next morning and no longer be in a bear market technically. In fact, the Dow may have only briefly dipped into bear market territory today. I haven’t checked, but I think it closed slightly above. Having said that, I believe the Dow has entered a secular bear, and may emerge (for more than a brief time) only after the easy credit/trashed dollar/balance of trade/current account deficit/transfer payments/real estate/inflation/deflation fiasco is cleaned up sometime after my kids graduate from high school (they are in elementary now). This doesn’t mean there can’t be echo bubbles along the way, even nominal new highs.
You’ve got to love the ignorance of those who say “best time to buy ever” now that the markets are in bear territory. You would think they would have learned from the mistakes of those who bought the NASDAQ all the way to the bottom from January 2000 to December 2002. For 24 months there was a constant parade of “tech stocks are cheap! Buy, buy, buy!” Then they lost their ass.
Some people are just not capable of learning.
Your comments are noteworthy. I’ll only add that P/E ratios are not particularly low or compelling to buy. Earnings are going steadily down, so it is not as if the P/E ratios are continually getting better and better. I don’t think equities are all that cheap right now and I don’t expect them to be until the economy begins to pick up and earnings begin to rise. The economy is hurting and I think it could be a year or more before earnings really begin to pick up, if at all. The cost of everything but labor is rising, and that has to be eating into earnings as well.
I agree with everything you said, but had to add my take on the P/E ratio of the markets.
While not a trader, I agree.
Were oil to drop by 30 bux tomorrow, we might be able to say that the current levels are sustainable. Little growth, perhaps, but sustainable.
And that by itself would not bail out the financial sector or the housing part.
Problem is, oil ain’t gonna drop like that.
Is it just possible that the transport index is up because railroads, trucking companies and cargo shipping have raised prices faster than the rate of increase of their energy costs? Wouldn’t that be a logical explanation why trannys are up even though their business is down and costs are up?
For example, oil prices have skyrocketted, yet oil company profits have soared because they take advantage of the turmoil to add a profit premium to the increases. I’m wondering if transportation is doing the same thing. If it cost $4,000 more to ship a container by freighter but you charge $4,400 more to the customer, your profits go up. Ditto for trucks. They are getting killed on diesel but perhaps they are passing on all those costs plus a markup.
Just wondering...
You will see a huge sell off on profit taking if Obama gets elected, with his talk of 25%-30% capital gains taxes.
Worth repeating.
Thanks for another useful and intelligent post.
It is similar to the oft-quoted definition of recession. “Are in a recession” is only determined after 6 solid months of negative growth. You can’t know you are in a recession until a long time passes.
So “are in a bear market” is only determined after a 20% drop in the market. This is to distinguish the market formally from say a “10% correction in the market”. There is nothing to say the market couldn’t go straight into a 100-year long bull market the day after turning into a bear market.
But it does define the market. As in, “do you remember the bear market of 2008-2010?” It is just a label for a market that dips 20% off its highs.
It depends whether or not you want to lose money. I moved my entire 401(k) into cash-related investments in December 2006, so I’ve been earning 4% on my 401(k) while most other buy-and-hold mutual fund owners have taken their 20% bear market loss. (I did my best to try to tell everyone this was coming, along with a bunch of other Freepers, all of whom were more or less ignored, but I digress...)
Some would say it is too late and we are near a bottom so you might as well just keep dollar-cost-averaging. I think we have another 15% to go down before the bottom, if not more (these markets often bottom out way lower than they should in response to panic at the exact time people should be buying back in.)
Somebody posted a guess of 1100 on the S&P 500 Index. I think that is a very likely guess. So I don’t agree that it is too late to move to a safe cash-related investment like a money market fund. You won’t earn much of anything, but you will protect your fund from further loss. The liquidity crisis has much further to go and it will continue to drag down the economy and markets with it.
I would go into cash for the next year or so.
IMHO, oil WILL drop just like that, but not tomorrow. I don’t know when the oil bubble will burst, but when it does, I think prices will drop $50 or $60 just like that.
Why will Oil drop when demand exceeds production by 35 million barrels per day???
S&P 500 P/E is in pink. It is now at a 10 year low and has trended down for 6years.
yitbos
“Are you sure it’s the Dems who are selling? Maybe it’s Republicans who foresee an Obama administration and what his policies likely will do to the market (all markets), getting out while the getting is good. My liberal friends may take falling stock prices to be a negative comment on what Bush has done. I take the market to be discounting a future under Obama’s leadership. But maybe the change is really caused by other factors than US politics.”
This is partially an equivocal Rep vs Dem argument and partially a reflection of a reality that smells far more economic and financial than Rep vs. Dem. I don’t mean to be obtuse; the important thing is to avoid getting hosed and preserve your capital if you’re in it. We could apply all manner of analysis to the state of the market, but the apolitical facts are that these persistently high oil prices are historical harbingers of poor equity performance. There are also other negative headwinds blowing through the economy; specifically the severe tightening of credit. High input costs plus restricted credit are fancy ways of saying that many, many sectors of the economy are flat out running low on gas. Just like we peons are.
Over and above that, there should be not the slightest question that higher cap gains taxes and higher taxes on dividends are clear discouragements to investing in equities. I totally agree that the market could easily be discounting a lower-profit picture under Obama, but there are real, inescapable factors affecting things, Obama or not. (And I hope like hell not!)
Agreed.
At the least, someone with automatic contributions (new money), or other voluntary contributions, to a retirement instrument should direct it to cash in one form or another?
yitbos
Why?
Because the Economies driving the surge in oil usage are going to be hit big time by a massive turn down for goods and services over the next year.
This is already happening in some Asian countries and it looks like Europe is following suit.
China may be using lots of oil now but if the world stops buying their junk the citizenry will revert back to bicycles and ox carts.
I predicted high commodity prices two years ago when our government started to let the dollar weaken against other currencies.
Some wrote back saying I was absolutely bonkers.
The fed needs to raise interest rates on Democrats.
I was with you on this. I have a friend who cashed out 500K and is now my best friend. He had to fight his broker and family to get it done. Now look. I also had a great call to short google at it's highs and got rolled on by a bunch of "experts" on the Free Republic.
I see the Dow in the sub-10k range also. And it will end up there so fast that getting out will be impossible.
If you have a stock that is still making you money, chances are it is in the black for others as well. They will be taking profits to offset their losses very soon. Why wait? What is the upside for yourself? Another 3-8%? Face it, the downside is 20-30%. Tell me why that stock is worth holding?
After reading this thread once again I see many folks who have no business trading their own money.
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