Don’t Buy the ‘Stocks Are Cheap’ Hype: Weak Earnings May Mean a ‘Washout’ in ‘09
Friday was another remarkable day in another remarkably wild week for stocks. After trading as low as 8,118.50 in reaction to the dismal November jobs report, the Dow snapped back in afternoon to close up 3% to 8635.42.
The market’s ability to rebound and rally in the face of bad economic news is going to further encourage the bullish camp. With a number of market seers noting the market is at worst fairly valued on a long-term basis, talk of “bottoms” continues to fill the air (and airwaves).
But John Mauldin, author of the popular Thoughts from the Frontline e-letter, isn’t buying the “stocks are cheap” mantra — just yet.
Mauldin predicts valuations will eventually fall to record low levels — meaning low single-digits price-to-earnings ratios — before ultimately finding a floor.
“This is going to be a longer recession we’ve had in a long time [and] earnings are going to be impacted a lot more than people are currently thinking,” he predicts. If earnings do disappoint, today’s “cheap” P/E ratios will prove to be a sucker’s bet.
“You’re going to see more earnings disappointments.. .those are what weigh on investors, you keep getting disappointed and disappointed,” Mauldin says. “You could see a washout.”
If a washout — meaning another big market swoon — does occur, Mauldin expects it will likely come this summer after a “tradeable” rally this spring.
“The next [washout] will probably be a good long-term bottom [but] I’m not putting money into the market,” he says. “I’m not really excited about long-biased stuff just yet.”
On a related note, for all the talk about how well the markets are faring since the Nov. 20 lows and optimism about Friday’s action, the Dow still finished the week down 2.2% while the S&P lost 2.3% and the Nasdaq shed 1.7%.
1 comment:
Don’t Buy the ‘Stocks Are Cheap’ Hype: Weak Earnings May Mean a ‘Washout’ in ‘09
Friday was another remarkable day in another remarkably wild week for stocks. After trading as low as 8,118.50 in reaction to the dismal November jobs report, the Dow snapped back in afternoon to close up 3% to 8635.42.
The market’s ability to rebound and rally in the face of bad economic news is going to further encourage the bullish camp. With a number of market seers noting the market is at worst fairly valued on a long-term basis, talk of “bottoms” continues to fill the air (and airwaves).
But John Mauldin, author of the popular Thoughts from the Frontline e-letter, isn’t buying the “stocks are cheap” mantra — just yet.
Mauldin predicts valuations will eventually fall to record low levels — meaning low single-digits price-to-earnings ratios — before ultimately finding a floor.
“This is going to be a longer recession we’ve had in a long time [and] earnings are going to be impacted a lot more than people are currently thinking,” he predicts. If earnings do disappoint, today’s “cheap” P/E ratios will prove to be a sucker’s bet.
“You’re going to see more earnings disappointments.. .those are what weigh on investors, you keep getting disappointed and disappointed,” Mauldin says. “You could see a washout.”
If a washout — meaning another big market swoon — does occur, Mauldin expects it will likely come this summer after a “tradeable” rally this spring.
“The next [washout] will probably be a good long-term bottom [but] I’m not putting money into the market,” he says. “I’m not really excited about long-biased stuff just yet.”
On a related note, for all the talk about how well the markets are faring since the Nov. 20 lows and optimism about Friday’s action, the Dow still finished the week down 2.2% while the S&P lost 2.3% and the Nasdaq shed 1.7%.
Post a Comment