The 2 Factors Driving Stock Prices Since 1992…

Historically, dividends have been critical for maximizing total returns. But what are driving stock prices to all-time highs today? From Guggenheim Partners’ Scott Minerd: Multiple Expansion Driving the Rally in  U.S. Equities. The P/E multiple, defined as the ratio of price to  trailing 12-month earnings, has been the main driver of the rally in U.S. equities over the past two years. The S&P 500 index has increased by over 34  percent since the beginning of 2011, of which 28 percent has come from multiple  expansion. During the same period, growth in corporate earnings has slowed. The  trailing 12-month earnings for S&P 500 companies rose 2.4 percent in 2012  and another 2.5 percent for the first seven months of this year, registering the slowest earnings growth in non-recession years since 1998. Without renewed  earnings growth, a continued rally in stocks driven by multiple expansion may be  not sustainable. When multiples are expanding, stocks are getting “more expensive.”

 

S&P 500 RETURN AND THE BREAKDOWN OF CONTRIBUTION

stock returns

                                                                             Guggenheim Partners

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