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As Stock Market Enters Correction, Some Advisers Look To Buy
Fact, there is believed to still be a lot of leverage currently remaining in the capital markets.
In a downturn, usually leverage postions of investors get closed before margin calls are made. I have no way of knowing how much leverage is currently out there but it would not surprise me if it was north of 35%. See where I am going with this. A decline of 30% would put the S&P 500 Index somewhere around 1500 from its recent 52 week high of about 2135. This puts its TTM P/E Ratio back in line with what many say is a normal TTM P/E Ratio range of 14 to 16. Some like to streach and use forward estimates or even the Rule of Twenty.
Jill Mislinski currently does a monthly piece on this which I have linked below.
From review ... It is interesting that TTM Earnings are currently being reported at $94.68 down from prior year ending reporting of $102.31 ... and, they are not expected to improve until sometime in the fourth quarter with a December ending target of $100.59. At the current market close (1914) on September 1 puts the index at a TTM P/E Ratio at 20.2.
Still kina of expensive ... Don't you think? Let's see that is about a decline in TTM Earnings of about 7% thus far this year and 2% decline projected for the full year. Now if we take the prior's year ending closing price of about 2060 and mark it down by 7% we arive at a price of 1915 for the Index. Interesting, is it not? That is about where it closed on September 1. Wonder if it will close some where around 2020 come the end of this year? Indeed interesting if it does. That would be 2% below its 2014 December ending closing price of about 2060 and reflect the 2% anticipated decline in TTM Earnings.
Now some will say let's use the Rule of Twenty and in doing so that currently put's the Index around fair value. Perhaps so ... perhaps not. It depends on what the leveraged investor does. If they continue to close positions to reduce leverage ... Well, its still overvalued by my thinking. Now my engineer high school buddy will most likely put a different spin on my thinking as my dergee was in Economics. But, math is math.
Information about The Rule of Twenty is linked below ...
Comments
In a downturn, usually leverage postions of investors get closed before margin calls are made. I have no way of knowing how much leverage is currently out there but it would not surprise me if it was north of 35%. See where I am going with this. A decline of 30% would put the S&P 500 Index somewhere around 1500 from its recent 52 week high of about 2135. This puts its TTM P/E Ratio back in line with what many say is a normal TTM P/E Ratio range of 14 to 16. Some like to streach and use forward estimates or even the Rule of Twenty.
Jill Mislinski currently does a monthly piece on this which I have linked below.
http://www.advisorperspectives.com/dshort/updates/PE-Ratios-and-Market-Valuation.php
From review ... It is interesting that TTM Earnings are currently being reported at $94.68 down from prior year ending reporting of $102.31 ... and, they are not expected to improve until sometime in the fourth quarter with a December ending target of $100.59. At the current market close (1914) on September 1 puts the index at a TTM P/E Ratio at 20.2.
Still kina of expensive ... Don't you think? Let's see that is about a decline in TTM Earnings of about 7% thus far this year and 2% decline projected for the full year. Now if we take the prior's year ending closing price of about 2060 and mark it down by 7% we arive at a price of 1915 for the Index. Interesting, is it not? That is about where it closed on September 1. Wonder if it will close some where around 2020 come the end of this year? Indeed interesting if it does. That would be 2% below its 2014 December ending closing price of about 2060 and reflect the 2% anticipated decline in TTM Earnings.
Now some will say let's use the Rule of Twenty and in doing so that currently put's the Index around fair value. Perhaps so ... perhaps not. It depends on what the leveraged investor does. If they continue to close positions to reduce leverage ... Well, its still overvalued by my thinking. Now my engineer high school buddy will most likely put a different spin on my thinking as my dergee was in Economics. But, math is math.
Information about The Rule of Twenty is linked below ...
http://www.bloomberg.com/bw/articles/2014-05-01/rule-of-20-is-the-stock-market-fairly-valued
And, for those that like reading a good debate on the Rule of Twenty below is a link to Bogleheads.org ...
https://www.bogleheads.org/forum/viewtopic.php?t=168118
Comments on my thinking are welcome ... pro or con.