Most Popular
1. It’s a New Macro, the Gold Market Knows It, But Dead Men Walking Do Not (yet)- Gary_Tanashian
2.Stock Market Presidential Election Cycle Seasonal Trend Analysis - Nadeem_Walayat
3. Bitcoin S&P Pattern - Nadeem_Walayat
4.Nvidia Blow Off Top - Flying High like the Phoenix too Close to the Sun - Nadeem_Walayat
4.U.S. financial market’s “Weimar phase” impact to your fiat and digital assets - Raymond_Matison
5. How to Profit from the Global Warming ClImate Change Mega Death Trend - Part1 - Nadeem_Walayat
7.Bitcoin Gravy Train Trend Forecast 2024 - - Nadeem_Walayat
8.The Bond Trade and Interest Rates - Nadeem_Walayat
9.It’s Easy to Scream Stocks Bubble! - Stephen_McBride
10.Fed’s Next Intertest Rate Move might not align with popular consensus - Richard_Mills
Last 7 days
Trump Stocks and Crypto Mania 2025 Incoming as Bitcoin Breaks Above $100k - 8th Dec 24
Gold Price Multiple Confirmations - Are You Ready? - 8th Dec 24
Gold Price Monster Upleg Lives - 8th Dec 24
Stock & Crypto Markets Going into December 2024 - 2nd Dec 24
US Presidential Election Year Stock Market Seasonal Trend - 29th Nov 24
Who controls the past controls the future: who controls the present controls the past - 29th Nov 24
Gold After Trump Wins - 29th Nov 24
The AI Stocks, Housing, Inflation and Bitcoin Crypto Mega-trends - 27th Nov 24
Gold Price Ahead of the Thanksgiving Weekend - 27th Nov 24
Bitcoin Gravy Train Trend Forecast to June 2025 - 24th Nov 24
Stocks, Bitcoin and Crypto Markets Breaking Bad on Donald Trump Pump - 21st Nov 24
Gold Price To Re-Test $2,700 - 21st Nov 24
Stock Market Sentiment Speaks: This Is My Strong Warning To You - 21st Nov 24
Financial Crisis 2025 - This is Going to Shock People! - 21st Nov 24
Dubai Deluge - AI Tech Stocks Earnings Correction Opportunities - 18th Nov 24
Why President Trump Has NO Real Power - Deep State Military Industrial Complex - 8th Nov 24
Social Grant Increases and Serge Belamant Amid South Africa's New Political Landscape - 8th Nov 24
Is Forex Worth It? - 8th Nov 24
Nvidia Numero Uno in Count Down to President Donald Pump Election Victory - 5th Nov 24
Trump or Harris - Who Wins US Presidential Election 2024 Forecast Prediction - 5th Nov 24
Stock Market Brief in Count Down to US Election Result 2024 - 3rd Nov 24
Gold Stocks’ Winter Rally 2024 - 3rd Nov 24
Why Countdown to U.S. Recession is Underway - 3rd Nov 24
Stock Market Trend Forecast to Jan 2025 - 2nd Nov 24
President Donald PUMP Forecast to Win US Presidential Election 2024 - 1st Nov 24

Market Oracle FREE Newsletter

How to Protect your Wealth by Investing in AI Tech Stocks

Is a Stock Market Crash Imminent?

Stock-Markets / Stock Markets 2015 Mar 18, 2015 - 09:22 PM GMT

By: DailyWealth

Stock-Markets

David Eifrig writes: Last month, I attended the World Money Show in Orlando...

The Gaylord Palms Resort & Convention Center was jam-packed with attendees interested in new ideas to make money. But the mood wasn't pure revelry. I sensed that the audience was mainly worried about when the bull market will end and a bear market will begin.


That's the question that needs to be answered. The economy is growing briskly... but is it booming – in the sense that booms lead to busts?

Also, the market – as measured by the S&P 500 – is close to record highs. Does that mean the market is overpriced?

Not necessarily. Here's why...

On a valuation basis, the market trades for about 18.5 times earnings. That's above average, but compared with previous peaks, it doesn't indicate that a crash is imminent. Take a look at where we stand compared with the last three peaks...

The reason why we will see more upside in the market is because corporate profits are booming. In the last quarter, the companies that make up the S&P 500 earned a total of $30.50 per share. The previous peak was $24.06 in the second quarter of 2007. So while stocks have risen 39% from that time, earnings have nearly kept pace by rising about 26.7%.

There is a cause for worry, though. The profit margin for S&P 500 companies is at an all-time high of about 10%, based on operating earnings per share. At a certain point, growing profit margins further gets increasingly difficult... even impossible. When we hit that point – and we may be close – we'll need growing sales from a strong economy to keep corporate profits growing.

It's also important to note that investors today are willing to pay more for "value" stocks than "growth" stocks, based on historical averages. Over the last 20 years, value stocks have traded at an average of 14 times earnings, while growth stocks posted an average of 21. Today, value stocks trade at 15.5 and growth stocks trade at 18.7.

That means growth stocks offer a better opportunity today. It also indicates why people are buying stocks...

Investors attach a different level of risk to different areas of their portfolios. Some capital is allocated to high-growth opportunities. But many investors want the majority of their wealth in something extremely safe that still earns a yield. That's why it ends up in government bonds or large-cap dividend-payers.

This is the story that's driving today's market... the flight to safe yield.

Investors are still shaken by the financial crisis of 2008. And right now, they are scared of the slow economy and debt problems happening in Europe. They are scared of Russian aggression. And they are watching defaults happen in Argentina.

That fear has led to investors bidding up high-quality stocks. And it has also led to negative yields on Swiss, German, Danish, Japanese, and other sovereign bonds. Investors desire safety so much that they are willing to take guaranteed losses on bonds.

We won't be surprised if negative yields soon hit our shores.

Many have called for a bond bubble in the U.S. when rates eventually rise. It hasn't happened. In fact, it has gone the opposite direction for years.

The next test for the U.S. market will be when inflation and wage growth show enough life for the Federal Reserve to increase its benchmark federal-funds rate.

At that time, we think massive demand for safe assets will keep rates – like the yield on 10-year U.S. Treasury securities – very low.

We also expect an interest-rate hike by the Fed could cause a short-term jump in Treasury security yields. But we think it will be short-lived.

Overall, this is a market of middles. Stocks aren't much overvalued, but they should be approached with caution. Bonds are not in a bubble, but they don't offer juicy yields right now, either.

This makes today a time for being careful with your asset selection. Don't take any unneeded risks and stick to quality. High-quality assets don't go out of style... especially when you can get them at a good price.

Here's to our health, wealth, and a great retirement,

Dr. David Eifrig Jr.

P.S. Most people don't realize there are many different ways to earn passive income without touching stocks. For instance, if you own a home or condo, you qualify for a 100% legal IRS loophole that could lead to an extra $15,000 – tax-free – per year. I know a guy who makes enough tax-free income from this loophole to take several nice vacations every year. You can learn about this loophole and many others in my new Big Book of Retirement Secrets. Learn how to order a FREE copy right here.

http://www.dailywealth.com

The DailyWealth Investment Philosophy: In a nutshell, my investment philosophy is this: Buy things of extraordinary value at a time when nobody else wants them. Then sell when people are willing to pay any price. You see, at DailyWealth, we believe most investors take way too much risk. Our mission is to show you how to avoid risky investments, and how to avoid what the average investor is doing. I believe that you can make a lot of money – and do it safely – by simply doing the opposite of what is most popular.

Customer Service: 1-888-261-2693 – Copyright 2013 Stansberry & Associates Investment Research. All Rights Reserved. Protected by copyright laws of the United States and international treaties. This e-letter may only be used pursuant to the subscription agreement and any reproduction, copying, or redistribution (electronic or otherwise, including on the world wide web), in whole or in part, is strictly prohibited without the express written permission of Stansberry & Associates Investment Research, LLC. 1217 Saint Paul Street, Baltimore MD 21202

Disclaimer: The above is a matter of opinion provided for general information purposes only and is not intended as investment advice. Information and analysis above are derived from sources and utilising methods believed to be reliable, but we cannot accept responsibility for any losses you may incur as a result of this analysis. Individuals should consult with their personal financial advisors.

Daily Wealth Archive

© 2005-2022 http://www.MarketOracle.co.uk - The Market Oracle is a FREE Daily Financial Markets Analysis & Forecasting online publication.


Post Comment

Only logged in users are allowed to post comments. Register/ Log in