“Despite our more muted outlook for stocks, the ongoing U.S. equity bull market is likely to persist for some time,” says a summary of Vanguard’s economic and investment outlook for next year.
"Davis said he “certainly would not characterize” the U.S. stock market as in a “bubble.” He highlighted the chart below that uses versions of a common valuation measure, the cyclically adjusted price-to-earnings ratio or CAPE. The chart suggests the S&P 500 SPX, -1.10% isn’t “grossly ‘overvalued.’”
The table below shows other forecasts from Vanguard for next year.
See:
BeforeBell
Comments
S&P 500 earnings are expected to be around $125 per share in 2016 implying a price to earnings ratio of approximately 17x. We believe current market
valuations are stretched considering the muted overall earnings growth recently (S&P 500 earnings excluding energy +3% in 3Q15) combined with the potential
of a rising interest rate environment. Margin expansion, lower interest expense from debt refinancing, and buybacks have been large drivers of earnings growth
over the past few years. We believe these growth drivers are likely to fade in 2016 which puts more pressure on companies to generate better sales growth
going forward. We find it noteworthy that corporate insiders have been selling shares at the highest pace in over four years. According to TrimTabs Investment
Research, the selling averaged $430 million a day in November, the highest since May 2011.
We are very focused on the divergence in price performance in the equity markets relative to the credit market. The high yield market remains under pressure
with weaknesses now extending beyond energy. The high yield market is flashing signs of a sustained slowdown in growth, yet the equity market has marched
higher. We are watching this dynamic closely.
As we enter December, we believe it pays to be patient in allocating capital to new ideas. We have approximately 19% of the Fund in cash and are looking
opportunistically to deploy cash when we find attractive risk-adjusted ideas. Given the rapid rise in equity markets since late September we are finding more
compelling short opportunities than long opportunities in the current market environment.
http://www.ottercreekfunds.com/media/pdfs/OCL_Factsheet.pdf