“The end is near” has been the bears’ dire prediction since the start of the bull market on March 9, 2009. This year’s rally to new record highs suggests that the bears have lost their credibility and that investors are becoming increasingly convinced that the end is actually still far off.
So writes Dr. Ed Yardeni (http://blog.yardeni.com) in edited excerpts from his original post entitled Reversion to the Mean (excerpt).
[The following article is presented by Lorimer Wilson, editor www.munKNEE.com and may have been edited ([ ]), abridged (…) and/or reformatted (some sub-titles and bold/italics emphases) for the sake of clarity and brevity to ensure a fast and easy read. This paragraph must be included in any article re-posting to avoid copyright infringement.]
Yardeni goes on to say in further edited excerpts:
For the past three years, the market’s valuation multiple has been held down by fears that a financial meltdown in Europe, a double-dip recession in the US, and a hard landing in China…[would] cause a recession.
If the end of this Endgame scenario is far off or if there is no end to the Endgame, then valuation multiples have been too low for the past three years and have room to move higher, which is what they are doing now.
From this perspective, the recent valuation-led rally in stocks isn’t irrational exuberance. Rather, it is a bullish rejection of the bearish and dreaded prediction of the Endgame prognosticators pontificating that the end is near or even imminent.
- The mean of the monthly forward P/E of the S&P 500 since September 1978, when the data start, is 13.7.
- The recent valuation-led rally may simply be a reversion to the mean, as the P/E has rebounded from 12.1 at the end of last year on November 14 to 14.4 yesterday [May 15th].
- The bull market’s trough P/E was actually 10.2 on October 3, 2011.
- The bull market’s peak P/E was 15.1 on October 14, 2009 before the bears distracted us with their Endgame scenario, which depressed P/Es.
- Reverting above the mean to 2009’s peak would put the S&P 500 at 1744, up 5.2% from yesterday’s close.
(Editor’s Note: The author’s views and conclusions in the above article are unaltered and no personal comments have been included to maintain the integrity of the original post. Furthermore, the views, conclusions and any recommendations offered in this article are not to be construed as an endorsement of such by the editor.)
*http://blog.yardeni.com/2013/05/reversion-to-mean-excerpt.html (If you are not a subscriber, you may receive our research on a trial basis by clicking on “Premium Trial“)
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