Plunge and bounce. All the market is doing now is debating whether we’ll be on the red line or the green line next year
Everyone has an opinion on red vs green. Objectively, there is no way to have any degree of certainty given the large number of unknowns 
Insiders have likewise acknowledged this
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This extreme uncertainty is reflected in volatility, and years like this have an overwhelming tendency to remain volatile
You can throw 1Q (a different world) and 2Q (epically bad) in the toilet. 3Q (and 4Q more so) will offer the first clue about whether we’ll be on the red or green line next year
Also throw valuations based on next 12 months in the toilet: 2Q (and 3Q) will be horrible. Market is focused on FY21: will it be 5, 10 or 15% below trend EPS? Red or green line?
That uncertainly (and extended timeframe) obviously implies a much lower PE than the 19x at which was priced in February.
Fun with numbers: Ed Yardeni expects FY21 EPS of $150 (8% below FY20).
- At 15x (long term median PE), ‘fair value’ 2250.
- 14x = 2100.
- 13x = 1950.
Market doesn’t follow 1-yr forward PEs very closely (R2 < 10%) but a return to those levels would make some sense
- At 15x (long term median PE), ‘fair value’ 2250.
- 14x = 2100.
- 13x = 1950.
Market doesn’t follow 1-yr forward PEs very closely (R2 < 10%) but a return to those levels would make some sense
A ‘second wave’ in the autumn will drive those numbers lower; a breakthrough in technology will push them higher. A sideways range 2000-3000 (false breaks in both directions) will frustrate the most
There is no discernible correlation between rates and valuations at all fat-pitch.blogspot.com/2014/11/are-lo…
FY20 EPS will be a disaster. Mr market is instead pricing off FY21 and trying to guess how much below FY19 it'll be. Current swag of $170 likely to fall to ~$150. Look higher in thread
If you reopen, they still might not come
Likewise:
It’s early and it will take time
What happened 2 months ago (1Q20) and even now (2Q20) is not indicative of what is likely in 2021 and beyond ($SPX’s focus)
Q-Ratio has been able to explain 52% of the variations in the market’s 10-year returns, one of the highest r-squareds you will ever find in the stock-market
marketwatch.com/story/this-set…
marketwatch.com/story/this-set…
Public pension funds are already underfunded.
One reason why tech and health care have outperformed and financials have stunk
The apparent Main St/Wall St disconnect explained (again)
By the end of next year, GDP is expected to be about 2% below where it was at the end of last year
is overvalued (scroll up) but looking at next 12-m makes it absurd because it’s focused on what is probably an extreme outlier period
Valuation chart from GS but $150 happens to be the Yardeni estimate for FY21. No one knows, but we’re probably at the ‘priced for perfection’ stage.
Current shape of the recovery curve
Likewise:
A third of the unemployment benefits owed to 40m out of work Americans has not yet been paid
Not only have investors focused on the sectors with the best EPS growth (scroll up) but also those with the best balance sheets. The stock market isn’t all TA, despite what you read on FinTwit (chart from GS and @sentimentrader)
Today’s NFP data was less about "reopenings". 'That will be more of a June story. Instead it was likely due to companies rehiring because they let too many people go in April, and because some companies needed to rehire to qualify for PPP forgiveness.’
The micro focus on daily and weekly market swings (mostly psychology) disguise what drives the longer term market moves (mostly macro)
New post-GFC high
Recall first chart in this thread: all the market is doing now is debating the shape of the curve
Market mostly goes up in economic expansions and mostly down in contractions
