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S&P 500 primed for a fall?

Posted Sep 02 2008, 02:40 PM by Kim Peterson
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Tuesday's "uh-oh" story of the day comes from Bloomberg, which points out that shares of companies making up the S&P 500 Index are trading at 25.8 times profits, the highest valuation in five years. The last time that happened was in 2001, right before the dot-com bubble burst and U.S. companies lost about half their market value.

The problem, according to money managers, is that analysts are too optimistic about profits. Companies won't be able to reach the numbers analysts are predicting, and the high valuations are going to tumble. Analysts have overreached on profit in the last four quarters, according to Bloomberg.

"The fundamentals are going to be poor, earnings are going to be bad, and there are going to be more huge writedowns," money manager Philip Orlando said. "We think stocks probably need to work 5 to 10 percent lower over the next month or two.''

For the S&P 500 companies, analysts are expecting aggregate earnings of $21.69 a share in this current quarter and $24.62 in the fourth quarter. That's 3.9% and 62% higher than last year's third and fourth quarter, respectively. (No, that 62% is not a typo).

But some stocks are trading below the average valuation, including Gap, AK Steel, and Lexmark International. And some investment banks are telling clients to buy stock, expecting an earnings upturn.

Comments

 

Thank goodness Palin is no Hillery, did you see Hillery avoid Bills kiss the other night? She leaned over and kissed Obama instead.  Is that call kissing up?  Please could someone please tell me what experience Obama has.   I am from the Chicago area and no one here seems to know.  Stocks will do the same thing they always have, go up and go down. After 60 years I don't get upset even though I have had my share of losses and gains as everyone else.  What will put us into a tailspin is another 9/11 or worse from all the radical groups.  My dad fought against Hitler and so we better be careful we have a leader who will put the

priorities of our nations SAFTY 1st.....Julie in Illinois

Does anyone think 4th quarter earnings will be 62% better than last year's?

163 ...

Out of 171 - that's the number of blog entries this article received during  8 - 5 business hours (EST) on Wednesday, Sept. 3.  This blog virtually shut down when business hours ended.  

Maybe I was wrong, and it has nothing to do with America's fast-food mentality.  Or maybe I am correct and most of you are just trying to get rich quick so you can tell your empoer to shove-off.  Or, maybe the market is falling because there are too many people writing blog entries while on their employer's time clock.

I don't count, as the econmic downturn - especially it's effect on the construction industry - has found me unemployed since late February.  And I can assure you, I'd rather be working full time than piece-mealing multiple part time jobs to get 26 - 30 hours a week at much less pay with no benefits.  As much as I hated to, yes I had to rely on govenment handouts until securing the work I now have.  Sorry, it's just this thing I have about having a roof over my family's head and needing to eat.

Lead us all to financial security MSN!  Baa! Baa!

Some are overvalued, some are not.  One cannot take one thing and think that it applies to all things.  Being a player in the stock market is not a thing that everyone can handle.  It is hard work, and I appreciate the information supplied by the analyst.  However, some of it is well thought out and some of it seems like someone just had to supply a certain number of words to fill out a column.

I was told that the largest oil field in the world was recently found along the rockies here in America;  larger than all of the other oil fields worldwide combined.  Our government has been trying to keep this a secret from us.  What is up with that?

I checked various charting sites like bigcharts.com and found that the S+P 500's Price to Earnings (P/E) ratio was around 15.5.   The historic average is around 14.  It peaked around 43 about 8 years ago when the index reached highs of 1500.    In 1994 the P/E ratio was around 14.  Just by judging the P/R ratio alone, perhaps we have reached bottom.  Also factor in oil dropping from $143 to $100 a barrel as well as the Fed Government takeover of Fannie Mae and Freddie Mac.  I think these two factors have more of a positive impact on the S+P 500 since they affect consumer and business sentiment which in turn impacts business investments, etc.  

One word... SCARCITY.  The implication that something (housing, commodities, currency, equities) is in short supply, drives the price up).  When the implication is "proven" wrong (by data, popular analsyts, or a government number), the price reverses.  The problem for normal people is that the expectation is manipulated by people and factors beyond our contol, and unless you're willing to play the game, I say get completely out of debt before "investing" a dime in this market.

I'm of the mind that this country's leaders (both Democratic and Republican) are either in denial or flat out lying to the American people.  The financial institutions are so greedy, they perpetuate the sham.  This is not the America of 30 years ago, much less that of the founding fathers, and I am truly saddend by that.

Zzzzzzzzzz.  Go consult a seasoned money manager or hedge fund who employs braod-market timing.  It was so easy to get out of the market in early 2000 due to the fundementals, then get back into the market in early 2003 due to fundementals and the relief in geo-political tensions (no WMD in Iraq), then leave the market again in early 2007 due to the unbridled greed unleashed by Wall Street and the runaway printing of money (again) by the FED.  Make 15% per year on average and go play golf with your spare time instead of getting mired in this short-term trading hogwash.  Life is too short.

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