Tuesday, November 4, 2014

Valuations Not Too High for Central Banks (excerpt)

The combination of the recent weakness of forward earnings with the record-breaking performance of stocks has boosted forward P/Es significantly since mid-October. Here are the year’s peaks, mid-October lows, and Friday’s readings of the forward P/Es for the S&P 500 (15.7, 14.4, 15.7), S&P 400 (17.7, 15.3, 16.9), and S&P 600 (19.3, 15.8, 17.6).

The S&P 500 seems especially expensive relative to forward revenues. The same can be said for Q3’s ratio of the market capitalization of the S&P 500 to its aggregate’s revenues. The ratio rose to 1.66, the highest since Q1-2002. I suppose valuation multiples can continue to go higher now that we have the Kuroda Put. The major central banks and government pension funds are not value-oriented investors.

Today's Morning Briefing: Kuroda’s Put. (1) Main drivers of the bull market. (2) Worries have evaporated. (3) BOJ upping the ante. (4) QQE-1 was scheduled to terminate by end of FY2014. (5) QQE-2 is more open-ended at least through end of FY2015. (6) Contrary indicator alert: Japanese pension fund raising global equity allocation from 24% to 50%. (7) What if monetary policy can’t cure what’s wrong, but central bankers don’t get it? (8) How do you say “melt-up” in Japanese? (9) Forward earnings weighed down by falling oil prices. (10) Valuation metrics getting pricey again. (11) Central bankers and government pension funds aren’t value buyers. (More for subscribers.)

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