What happens when anemic earnings meet over-priced assets?
The answer remains to be seen. But a decent guesstimate: something not good.
According to one recent report, the trailing 12-month PE ratio for the S&P 500 jumped from over 15 to almost 18.5 in the last year. One reason: earnings growth has lagged price gains. Should earnings growth, as some pundits expect, increase, the PE ratio could fall toward the 15 level again.
But that's, some say, a big should. The point here is valuations look expensive. Then there's the possibility the Bernanke Dog and Pony Easy-Money Show will hit the egress trail sooner rather than later.
There's only so many fancy rabbits in any economic hat, notwithstanding the spate of stock buybacks and cost cuttings corporate USA has pulled off in recent years. These are old not new ploys. All the more reason perhaps to expect the unexpected.
You might want to start your list today.
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