Your post got me thinking and
I started analyzing…
Uhh Ohhh, watch out –
Danger, Danger, Will Robinson !
We all know the availability of cheap money has helped earnings – through share buybacks, through expansion of business that may have been a bit risky, etc… Even Apple, one of the biggest cash cows, very recently did a fixed income offering through Switzerland, because of the availability of cheap money !
I wanted to look at S&P500 revenue change since 1995 compared to index performance – 1995 is the start of the first parabolic move. I work in the financial sector, so I have access to solid databases.
I completely understand the old statements – the market is irrational and illogical, no direct correlations, many influences, etc…
I also understand the trend is your friend until it isn’t - the current trend is still up and bullish…
From 1995 to 2000, we saw revenues growing nicely (5 to 7%) and the market was booming (34%, 20%, 31, 26.6, 19.5% in 1999).
Many different factors came into play, of course…
Then came the bust – negative revenue growth… (2001, ’02, and ’03) and the market reacted with -10% in 2000, -13% and -23% in 2002.
In 2004 to 2008, we saw revenues for the SP500 launch (6%, 11, 11, 9, and even 8% in 2008) and the market was also launching…
Then again came the bust – the slowdown and the debt collapse… revenues in 2009 at -5% and -14% in 2010. The market collapse was hard and fast in 2008 with a –38.5%.
During the ‘90’s boom we were upgrading technology (pc’s, networks, Y2K, etc…).
During the 2003 to 2008 market boom we were building houses and Commercial RE everywhere…
So where are we at now ? During the past 4 years, the S&P500 revenues are 6.7% in 2011, 9.4% in ’12, 3.2% in ’13 and I see 3.3% in 2014. Estimates for 2015 are NOT BIG (3% max and falling), we’re slowing and it is worse on a global basis (the S&P500 is, in a sense a global index now)… China slowdown, Europe problems, Japan is hideous…
And the market ??!?! The market has already boomed… (13.4% in ’12, 29.6% in ’13, and Jan. 2014 to now is 13.6%. This has left us VERY vulnerable, in my opinion. Forward multiples are back at nosebleed levels with Mkt cap/Fwd Revs at 1.8 and Fwd P/E at 17.8.
I am not saying we can’t go higher, but the gains have already come, over 200% since March 2009 !! And the brunt of this has come from an explosion in global debt and easy money – we’ve already put the market gains in our pocket, based on tomorrow’s hopeful revenue gains. The upside market volume has been pathetic for months and only seems to be solid after a small correction or a news announcement piece of stimulus by the Fed or the EU – and that volume fades in hours.
Again, forward revenue estimates are NOT expanding nicely and that is why we see concern by the experts and analysts – Shiller being a good example saying he’s ready to get out of US equities… Very few experts see a boom for the market in 2015 and we’re already at the consensus year ending target price of 2100 ! I am not being a Marc Faber doom and gloom guy here, and I also realize there’s dozens of items factored into the market, but geez… be careful with calls and bullish euphoria here. This is why I actually really like watching puts closer than calls here… All it takes is a small spark to light this powder keg and we all know the market falls 3 times as fast as it climbs… Another reason to keep an eye on puts… Just be mindful of the overall risk/reward picture and be ready to shift gears.
OK, I am done with the rant… “I remember throwin’ punches around and preachin’ from my chair!” The Who.
