“With some leading stocks at all time highs investors could be tempted to take some money off the table in here as they perceive the major US market indexes as Toppy” — Paul Ebeling
Poor judgement, as my work show that a significant Summer rally is on the cards, and any investor who tries to time the market will fail and miss out.
The S&P 500 is selling for about 42X current trailing earnings, that is above the 25-yr average of 26X and implies an equivalent interest rate of just 2.4%.
The recent uptick in bond yields, the benchmark 10-yr T-Note is paying about 1.6%, much less than its 3.6% 25-yr average and 2.5% for the 10 yrs prior to the VirusCasedemic. So, stocks at these prices are very attractive.
Those investors not willing to take the risk of interest rates rising further with rising federal spending and deficits, leaving 10-yr T-Bonds vulnerable to losses if sold early, then stocks are even more attractive as compared to shorter term maturities, notably the 3-yr T-Note is paying only 0.33%. Using that and the 5yr at 0.89% as the metrics, stocks are super attractive.
Then we have corporate profits are poised to really spike this yr.
The economic recovery is expected to drive up corporate profits by 52% in Q-2. That lowers the S&P 500 PE/ratio to 26X and in line with historical experience.
Viewed this way, today’s stock prices reflect close-in expected gainers in corporate profits from strong Q-2 growth.
Plus, corporate profits are expected to continue running in Q-3. Thus, supporting a Summer rally, that may begin later this Spring.
Monday, the benchmark US stock market indexes finished at:
DJIA -55.20 to 33745.40, NAS Comp -50.19 to 13850.03, S&P 500 -0.81 to 4127.99
Volume: Trade on the NYSE came in at 789-M/shares exchanged
HeffX-LTN’s overall technical outlook for the major US stock market indexes is Very Bullish in here.
Looking Ahead: Investors will receive the Consumer Price Index (CPI) for March and the NFIB Small Business Optimism Index for March Tuesday.
Have a healthy day, Keep the Faith!