Tuesday, April 29, 2014

Is the US Fairest of Them All? (excerpt)

Forward earnings are at record highs for all three of the S&P market cap indexes. There are no other developed countries with forward earnings trending higher into record-high territory. Let's have a closer look:

(1) Indeed, the forward earnings of the Developed World ex-US MSCI is still below its 2011 high, though it has been recovering since mid-2013. That’s mostly because the plunge in the yen in response to Abenomics propelled the forward earnings of the Japan MSCI by 37.0% last year.

(2) So far, the recovery in the Eurozone hasn’t shown up in the forward earnings of the EMU MSCI. Despite solid rebounds in the Eurozone’s M-PMI since mid-2012 and a similar upturn in Germany’s Ifo Business Climate Index, the EMU’s forward earnings has been flat for the past year after falling from mid-2011 through early 2013.

(3) Even more puzzling is the UK, which has had stronger economic growth than the Eurozone over the past couple of years. Yet forward earnings, which have been declining since the second half of 2011, are still falling.

(4) As for emerging markets, they are neither emerging or submerging, according to the forward earnings of the EM MSCI. It’s been basically flat since 2011.

The bottom line is that the US is the fairest of them all based on my analysis of forward earnings around the world. The only problem is that the US isn’t the cheapest of them all. There is a bit of a valuation problem in the US stock market because many stocks are either fairly valued or overvalued. The current internal correction should correct this problem. While it is happening, the S&P 500 could churn sideways for a while before grinding higher to end 2014 at 2014.

Today's Morning Briefing: Earnings World. (1) Fully Invested Bears. (2) Barron’s has a tired bull on the cover. (3) Big Money poll finds more bulls than bears, but less bullishness. (4) Everyone hates bonds. We don’t, but we don’t love them either. (5) Contrarian indicators. (6) Is the market’s leadership change a sign of a top? (7) A brief review of the internal correction. (8) A brief review of forward earnings around the world shows USA is fairest of them all, but not cheapest. (More for subscribers.)

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