The disparity among market commentators and analysts in their assessment of market valuations is unusually high today. Although our analysis suggested that the sharp price decline following September 11 brought the U.S. equity market close to fair value, the subsequent rise in the market and our closer analysis of the aggressive earnings assumptions required to…
The economy and capital markets were heading decidedly downward before the terrorist attacks intensified the public’s overall feeling of uncertainty and risk. While the post-September 11 panic selling has subsided, markets are still pricing in considerably higher risk premiums than existed prior to the terrorist attacks. This increase in risk-aversion affects economic growth and corporate…
The U.S. dollar’s recent decline against other major currencies has led to speculation that this long dollar bull market may be over. A secular decline or sharp drop in the U.S. dollar is not inevitable, but it cannot be ruled out.
Despite the dramatic fall in equity prices since March 2000, today’s S&P 500 still carries a great deal of intrinsic risk relative to its past.
Despite the severity of the peak-to-trough declines in the Nasdaq and S&P 500, it is hard to make the case that most equity investors have been put through the wringer of a serious bear market.
A look at major U.S. equity indexes returns over one-, two-, and five-year periods to put the ongoing decline in perspective.
Several recent studies challenge the validity and pervasiveness of the wealth effect. One report complains about flaws in the methodology behind the calculation of personal savings, while others suggest that the propensity to consume may have moved to a permanent and higher level, which would be less vulnerable to stock market weakness. These arguments hold…
This analysis considers investor psychology within the larger tapestry of economic stress points and equity valuations. Although investor sentiment has sobered over the last year, it has not approached the level of despair or pessimism that typically signals capitulation at market bottoms. Optimists cite several macroeconomic indicators as reasons for their continued confidence, while pessimists…
Over the last five years, investment in technology grew at an average annual rate of 25% in real terms, accounting for anywhere from 20% to 33% of total economic growth. Having over-invested during the expansion’s heady years, corporations are in the uncomfortable process of digesting excesses. If the virtuous cycle indeed turns vicious, the slowdown…
The persistent disparity among valuations across different sectors indicates the likelihood that high P/E stocks will continue to disappoint; while overlooked issues at the other end of the valuation spectrum should outperform. The proportion of lofty P/E stocks within the overall market is gradually shrinking. Despite value’s trouncing of growth last year, we suspect this…