For the second time since the bull market began, profits are surging and stocks are falling.
Standard & Poor’s 500 Index companies will earn 18 percent more this year than in 2010, according to the average estimate of more than 9,000 analysts compiled by Bloomberg. Higher profits haven’t stopped the gauge from falling 6.8 percent since April 29, pushing valuations to the cheapest levels in 26 years. Even if companies posted no growth, price-earnings ratios would be lower than on 96 percent of days in the past two decades.
The combination of China raising interest rates, concerns about a Greek default and the end of the Federal Reserve’s $600 billion stimulus program have almost wiped out this year’s gains. The divergence between profit forecasts and economic indicators shows the challenge to investors after the S&P 500 gained 88 percent from a 12-year low in March 2009.
“The market is not willing to pay for future growth,” said Nigel Holland, who helps oversee $516 billion at Legal & General Group Plc in London. “Provided there is better data, it will stabilize,” he said. “The market probably has room to rise 10 percent by year-end.”
http://www.bloomberg.com/news/2011-06-19/stocks-cheapest-in-two-decades-as-s-p-500-falls-with-earnings-climbing-18-.html
Standard & Poor’s 500 Index companies will earn 18 percent more this year than in 2010, according to the average estimate of more than 9,000 analysts compiled by Bloomberg. Higher profits haven’t stopped the gauge from falling 6.8 percent since April 29, pushing valuations to the cheapest levels in 26 years. Even if companies posted no growth, price-earnings ratios would be lower than on 96 percent of days in the past two decades.
The combination of China raising interest rates, concerns about a Greek default and the end of the Federal Reserve’s $600 billion stimulus program have almost wiped out this year’s gains. The divergence between profit forecasts and economic indicators shows the challenge to investors after the S&P 500 gained 88 percent from a 12-year low in March 2009.
“The market is not willing to pay for future growth,” said Nigel Holland, who helps oversee $516 billion at Legal & General Group Plc in London. “Provided there is better data, it will stabilize,” he said. “The market probably has room to rise 10 percent by year-end.”
http://www.bloomberg.com/news/2011-06-19/stocks-cheapest-in-two-decades-as-s-p-500-falls-with-earnings-climbing-18-.html
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