Flying too high?
Those fears would come at a sensitive time for U.S. stock markets. With indexes at all-time or five-year highs, investors and traders have begun to worry about valuations and the possibility that the December/January rally has left the market at a peak, with the next step downward.
Investors and traders looking for signs that they should stay in have drawn comfort from the still-reasonable price-to-earnings ratios of U.S. stocks, a standard measure of whether stocks are fairly priced.
Yes, the argument goes, the trailing 12-month price-to-earnings ratio of the Standard & Poor's 500 Index ($INX) has climbed to 17.2 from 15.62 a year ago, but the forward price-to-earnings ratio -- that is the P/E based on projected earnings for 2013 -- is just 13.5, according to FactSet Research Systems.
At that level, the market isn't cheap. But it isn't expensive, either. Not expensive in the "about to peak" sense, anyway. A forward price-to-earnings ratio of 13.5 is above the five-year average of 12.8, according to FactSet. But it is below the 10-year average of 14.2.
So on the basis of this measure of valuation, there's no reason to cut and run.
Of course, forward P/E ratios are only as good as the projections behind them. This one is based on an increase in S&P 500 earnings per share to $112.93 from an estimated $102 a share in 2012.
But what if earnings don't grow by 10% to hit $112.93? Any lag in the earnings growth rate pushes the price-to-earnings ratio of this market further above the five-year average and closer to the 10-year average.
The Wal-Mart indicator
That's why the worries about Wal-Mart's February sales and the impact of the fiscal cliff and the sequester are especially important now. If analysts are right about earnings growth in 2013, then the market has reasonable fundamentals under its recent rally. If, however, the warning signs are meaningful and projected growth for 2013 is too high, then this market is more vulnerable to a correction. (It doesn't help that 2013 increasingly looks like a year when growth will be loaded into the second half of the year, making it especially hard to judge the accuracy of analyst projections over the next few months.)
Wal-Mart's earnings announcement was an early indicator of how badly political chaos in Washington has hurt the economy. The company announced a higher profit in the completed fourth quarter, but -- as in the emails -- warned of weak sales in the current quarter.
This is by no means a final indicator. As we get closer to the actual sequester, I think anxiety will grow and we can expect Wall Street and investors to torture every number looking for clarity.
I don't think clarity can be gotten easily or quickly. This is going to take a while to figure out. And in the meantime, I think you can expect that the market will react to every piece of data that promises an answer.
Updates to Jubak's Picks
These recent blog posts contain updates to the stocks in Jubak's market-beating portfolios:
- Why Akamai is a smart play in cloud computing
- Look for an opportunity to buy Deere
- Why Cummins is a tough call
- Time to sell Nestlé after stock's big gain
- Why Toyota is a smart yen play
- Yum is still stalled in China
- Why Qualcomm is headed up
- Apple is still a growth stock
At the time of publication, Jim Jubak did not own or control shares of any company mentioned in this column in his personal portfolio. When in 2010 he started the mutual fund he manages, Jubak Global Equity Fund (JUBAX), he liquidated all his individual stock holdings and put the money into the fund. The fund may or may not now own positions in any stock mentioned in this column. The fund did not own shares of any company mentioned in this column as of the end of September. Find a full list of the stocks in the fund as of the end of September on the Jubak Global Equity Fund website.
Jim Jubak's column has run on MSN Money since 1997. He is the author of the book "The Jubak Picks," based on his market-beating Jubak's Picks portfolio; the writer of the Jubak's Picks blog; and the senior markets editor at MoneyShow.com. Get a free 60-day trial
subscription to JAM, his premium investment letter, by using this code: MSN60 when you register at the Jubak Asset Management website. Click here to find Jubak's most recent articles, blog posts and stock picks.
Jim Jubak's column has run on MSN Money since 1997. He is the author of the book "The Jubak Picks," based on his market-beating Jubak's Picks portfolio; the writer of the Jubak's Picks blog; and the senior markets editor at MoneyShow.com. Get a free 60-day trial subscription to JAM, his premium investment letter, by using this code: MSN60 when you register at the Jubak Asset Management website.
Click here to find Jubak's most recent articles, blog posts and stock picks.
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January and February sucked.
I wouldn't spend any money until the sequester thingy has been worked out. That's March gone.
And then I wouldn't spend any money until the debt ceiling thingy is worked out. That's April gone.
And I wouldn't spend any money until the IRS tax thingy is worked out. That's May.
It might be June before I feel comfortable enough to be a consumer again. That's two quarters down the tubes. Six months.
Since 70-percent of America's economy is based upon consumer spending, I'd say our dysfunctional government has made another fine mess.
Gas prices don't help the economy, poor leadership in Washington, deficit spending, no plan, Walmart selling junk and Obama taking his 100+ round of golf, Obama care about to hit next year, sequestor, mortgage interest deduction will be eliminated next year, higher taxes.....priceless with this Administration.
Let's not forget Obama's round of golf with a terrific family person - Tiger Woods....
I still can't find anyone in NH that voted for Obamo :) I'm going to keep looking, many voted for him :)
This is a perfect Seinfeld skit...
How's that Change working for you now?
If you all recall, Wall Street, WAL-MART, MICROSOFT, COSTCO, BOEING all Gave this slob money to win the election. Ya'll were up to your eyeballs in Obama's election Financing, so how's that working for ya'll now?
You will Reap what you Sew, let sequester take its place and let the chips fall where they may...
You know all those Obama Phones, the Bankruptcy of Detroit, Stockton and so many more....And now all those EBT Cards.....maybe, just maybe they too may be gone.....
Really now,as I listen to the Media, whine, want more of Obama, cause he went Golfing with Tiger Woods, Are You Kidding Me, has America really sent all these clowns to Washington DC?
Then Democratic Speaker of the house, Nancy Pelosi, in 2009 said of Health Care, " you have to pass it to get to know what's in it" Welllllll, several companies have figured out what's in it....Layoffs, cutting back and having to let people go...But some did it the right way...The CEO's went out to the parking lot, looked at the cars parked in the company lot...Found out who all had Obama - Biden Stickers....When he returned, he instructed his personnel chief to lay off all those that had Obama/Biden stickers on their cars...He said, they most certainly would understand....Sometimes Change takes sacrifice.....Because they voted for change, he might as well start right there send them all home and by allowing those folks to get right at that change.....
How do you suppose that change is working for them now, makes you wonder, huh....
And now don't you worry, more change is coming on March 1st, 2013....I personally cannot wait....With the cutbacks at the Pentagon, maybe David Axlerod can volunteer to fill one of those vacant civilian jobs....Or perhaps He could go to Lybia to fill the Ambassadors position....Yeah, that would be good now, wouldn't it?
All the Possibilities, a wonderment
I don't shop at Walmart much because I just don't like the fact that they are screwing their workers.
The other day I went to a Walmart by my home because it was very late at night and everything else was closed. I was shocked to see the Paul Newmans Coffee price. Walmart had it for $10.58 where as the same package at HEB was $7.59. Attention Walmart shoppers! You are not getting as good of a deal as you think you are by shopping at Walmart.
What happened to the WalMart's Logo made in the USA ?
You voted for Obama and the economy will go down the toilet as He has no idea what to do but waist money on Green Programs, lie and make speeches.
Wal-Mart is a cheap and rotten outfit.
I hope there sales go down a lot.
I don't want there China made junk.
I don't buy the idea that Wal-Mart shoppers are that forward-thinking, or that they're squirreling money away for the sequester. For many of them, gas and cigarettes are the two staples of life. They're also among the few things this socialist president has yet to figure out a way to subsidize. Until we get an entitlement program for gas and smokes, and maybe X-Box games, Wal-Mart is screwed. Couldn't happen to a more predatory company.
Maybe Mr. Obama should have spent his last 4 years working on jobs for Americans in the private sector instead of his health care and Dodd Frank's banking bills! Shameful!!! Keep believing his lies that its not him.
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