SP500 Index on the "financial" doping

hello,

From a few days we observe on the U.S. stock market lateral movement in the price range between 1864 and 1851 points. Saying more, since 7th March we can notice a slight downward movement. Marked on the chart with a red line. <chart 1>

chart 1. fSP500 Index Daily, 2014-03-25

In the postwar history of Wall Street we had to deal with twelve bull markets, and the average length of a bull market is 4.7 years. The longest growth lasting in the years 1980 - 1989, but it can be justified high economic potential of U.S. at the time. The current growth is celebrating the fifth anniversary of what has been only half the growth cycles. Only 3 times the boom lasted six years. If you look at the parallels, the previous boom in the years 2003-2007 was completed after 20 quarters, or in a time where we are now. But this is only statistics :)

Very interesting look the groundwork of these increases and it is not this time of the foundations of the American economy, but about investors' portfolios. U.S. investors borrowing from brokers is the highest in history, and now it is approaching the limit of 500 billion dollars. It is a natural phenomenon that during the bull market, investors buy a share using the credit, but this raises a serious consequence. In the event that starts the correction, it can be violent. Declines on the indexes and companies will lead to the closure of brokerage accounts and selling shares on the market.

And once again, more statistics :)

Currently, a 12-month forecast PE ratio (price / earnings) reached a value higher than the high in 2007. In the past thirty years, the value of this ratio in the area of 15-17 was the reason for the reversal of the upward trend <chart 2>. The exception was the technology bubble, during which the index has grown even to the level of 25. Then investors bought companies that do not earned, hence such a high valuation. Now the basics are healthier, but pricing is still high. Since 1976, the PE ratio reached a value higher than 17, only 2 times - just when the technology bubble and on the four months at the turn of 2003/2004. Currently, this ratio ranges from 15.4 to 17.4, depending on the source.

chart 2. SP500 12m forward P/E ratio

According to Goldman Sachs at the end of the year we can see the SP500 Index on the 1900 pts., But on the other hand, the bank believes that the S&P is overvalued by looking at almost any measure! Goldman Sachs calculates that the SP500 Index is overvalued by looking at the following indicators: PE, EV/Sales, EV/EBITDA, free cash flow, book value, inflation, interest rates. SP500 Index is also overvalued by 30% by looking at operating EPS and 45% looking at the reported revenues.

At the end, I just want remind you:

Three rounds of bond purchases from the Federal Reserve have helped fuel economic growth, sending the SP500 Index surging as much as 178 percent from its 2009 low. Fed Chair Janet Yellen said on March 19 that the central bank’s stimulus program could end this fall and benchmark interest rates may rise about six months later.

Fed Bank of Philadelphia President Charles Plosser said in an interview on CNBC today that the central bank wants to get back to normal policy, and that he doesn’t think the Fed changed its position on a rate rise.

keep focus

best regards,

oscarjp

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