Posts tagged: stock market

The Problem With Forecasts

We can’t predict the future – if it was actually possible fortune tellers would all win the lottery.  They don’t, we can’t, and we aren’t going to try. However, this doesn’t stop the annual parade of Wall Street analysts from pegging 12-month price targets on the S&P 500 as if there was an actual science behind what is nothing more than a “WAG.” (Wild Ass Guess). In reality, all we can do is analyze what has happened in the past, weed through the noise of the present and try to discern the possible outcomes of the future.

The biggest single problem with Wall Street, both today and in the past, is the consistent disregard of the possibilities for unexpected, random events. In a 2010 study, by the McKinsey Group, they found that analysts have been persistently overly optimistic for 25 years. During the 25-year time frame, Wall Street analysts pegged earnings growth at 10-12% a year when in reality earnings grew at 6% which, as we have discussed in the past, is the growth rate of the economy.

Ed Yardeni published the two following charts which shows that analysts are always overly optimistic in their estimates.

 

Read more »

LiveJournalLinkedInEmailFacebookTwitterShare

Predictions for the stock market in 2016…

“Uncertainty about how markets respond to the first interest rate hike in nine years, commodity price weakness, and slow global growth are some of the things strategists have identified as potential headwinds for stocks and earnings. We’ve rounded up the calls from the top firms on Wall Street that we have so far.

We also included their original 2015 targets, so you can see where the strategists stood a year ago compared to where the market is now. Many of these were revised as the year unfolded.

 

Goldman Sachs

Goldman Sachs

2016 year-end target: 2,100

2016 EPS forecast: $120

2015 year-end target: 2,100

Comment: “We forecast the S&P 500 index will tread water for a second consecutive year in 2016,” wrote David Kostin. “Our year-end 2016 target of 2100 represents a 1% price gain from the current index level (2089), which itself is just 1% above the year-end 2014 level of 2059.”

Source: Goldman Sachs

Read more »

LiveJournalLinkedInEmailFacebookTwitterShare

US companies versus MSCI Indices Free Float Market Cap…

BAML map

Read more »

LiveJournalLinkedInEmailFacebookTwitterShare

10-Year Treasury Yield and S&P 500: where negative correlation starts?

Read more »

LiveJournalLinkedInEmailFacebookTwitterShare

10Y UST and S&P500: long term trends

“Over the same 30-year period that global stocks have delivered their stellar +7.5% real return, a constant maturity portfolio of 30-year U.S. Treasuries has delivered a no less impressive +6.2% real,” GMO’s Ben Inker writes.

4.24.4 Read more »

LiveJournalLinkedInEmailFacebookTwitterShare

The current size of the Global Stock Market

image001 (1)

Read more »

LiveJournalLinkedInEmailFacebookTwitterShare

Global Equity Valuations as of March 31, 2015

Read more »

LiveJournalLinkedInEmailFacebookTwitterShare

Valuation levels aren’t a predictor of market corrections

“Many investors fear that higher valuations suggest that a bear market is imminent. But history suggests that bear markets more often result from factors external to the stock market, such as recessions, wars and credit bubbles. There have been ten pullbacks of approximately 20% or greater since the 1920s.

Instead of trying to time the next market correction, investors should stay diversified to protect one’s portfolio against unforeseen market shocks”.

Read more »

LiveJournalLinkedInEmailFacebookTwitterShare

Stocks have outperformed every other asset in the long-run

Stocks have outperformed every other asset in the long-run. In shorter, specific periods however this can vary. Meanwhile, cash is in fact not king as it struggles to keep pace with inflation.

Read more »

LiveJournalLinkedInEmailFacebookTwitterShare

A Fascinating Way To See Bubbles Within The Stock Market

Asset bubbles are notoriously difficult to identify as they are happening.  Often times, they only become clear in hindsight. Having said that, Goldman Sachs’ David Kostin offers an interesting stock  market chart in his team’s new US Quarterly Chartbook. It shows the sector composition of the S&P 500 by market cap since 1974.

As you can see, sector bubbles manifest when they suddenly explode as a  percentage of the S&P 500. The dotcom bubble is very prominent, represented by the ballooning info tech  sector stocks. The credit bubble appeared much more gradually as seen in the  rise of financial sector stocks. “Financials was only the third sector since 1975 to represent 20% of the  market capitalization of the S&P 500,” noted Kostin. “However, Financials  share of the S&P 500 market cap has declined from 22% to as low as 9% in  early March 2009.”

cotd bubbles

Read more »

LiveJournalLinkedInEmailFacebookTwitterShare

WordPress Themes