What gives? The market is surging pre market and Bloomberg front page article points out the obvious.
http://www.bloomberg.com/apps/news?pid=20601087&sid=a6BxAKLBZvII&refer=home
The Standard & Poor's 500 Index, which had the worst first half since 2002, added 0.2 percent this quarter, the only gain among the world's 10 biggest markets in dollar terms. Shares in the benchmark index for American equity climbed to an average 25.8 times reported profits, the highest valuation in five years. The last time that happened, the S&P 500 fell 38 percent.
and
The index's price-earnings ratio rose above 25 three times in the last five decades, data compiled by Bloomberg show. The last was in 2001, during the bear market that followed the bursting of the dot-com bubble. The increase in valuations preceded a plunge that helped erase about half the market value of U.S. companies.
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2 comments:
I think the S&P selling at 25x earnings is mostly due to non-cash write downs at the big financial firms. Based on earnings estimates for 2009 (roughly $106 for the S&P), the market is trading at 12x FORWARD earnings...
May be a valid point except banks are not taking losses. The post below points that Bridgewater estimates only 1/5 of actual losses by the banks have been taken and I just sent you something that shows ZIONs moved over a billion dollar to Held to Maturity not taking losses.
The 12X forward multiple assumes greater than 40% increase in earnings in 4Q 08 and I think 30% in earnings in 1Q 09. Name your bet and I will take the side that it doesn't happen.
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