1999 again?

[RuleNumberOne]

The S&P 500 increased 72% in those 6 years (Jan 1 2014 to the present).

 

S&P 500 sales increased 27.5% but the P/S multiple expanded by 35.5%

 

Jim Bullard, the guy who wanted a 50bp cut immediately, has gone silent.

[LC]

P/S remains a good metric to avoid the use of non-GAAP P/Es everywhere.

 

Why not just use P/E which does conform to GAAP?

 

 

[stahleyp]

market is up almost 17% since this thread was started.

[thepupil]

P/S remains a good metric to avoid the use of non-GAAP P/Es everywhere.

 

Why not just use P/E which does conform to GAAP?

 

the more bearish like to use price to sales because margins/tax rates/interest rates have all moved in a way that is favorable to earnings.

 

the more bullish like to use PE as simple TTM and forward PE's appear to be, for the most part, reasonable under any historical context and pretty cheap in today's rate environment.

 

The truth is probably somewhere in between. Corporations are probably over-earning, but to assume complete mean reversion in margin, interest burden or tax rates, is likely to make one overly bearish of stocks. There have been legitimate shifts in sector composition that hsould lead to structurally higher margins, the trend in lower tax and interest burden appears structural to a certain extent, etc. etc. Google should have a higher long term margin than the top index components of 2000, 1990,1980, etc. At least in my opinion.

 

[RuleNumberOne]

Hard to find - the adjustments depend on the analyst or analysis firm. E.g. Value Line may adjust differently compared to Yardeni Research.

 

But i could use the fundamental data from a source like Quandl and compute S&P 500 GAAP P/E myself i guess.

 

P/S remains a good metric to avoid the use of non-GAAP P/Es everywhere.

 

Why not just use P/E which does conform to GAAP?

[RuleNumberOne]

I skipped 2013 because that was a great year for the stock market. If you start from January 1, 2013, P/S expansion is even more glaring:

 

Over the last 7 years:

P/S went from 1.31 to 2.25 today

S&P went from 1426 to 3153 today

 

121% rise in the S&P, 72% rise in the P/S, just 28.5% rise in sales.

 

So the P/S expansion was 2.5x times the rise in sales from Jan 2013 to today.

 

Also, note that every Dem wants to reverse the corporate tax cuts. No other way to pay for exploding entitlements with imploding demographics.

 

I am not saying we need to go back to 1980 or 2000, just go back 7 years.

 

 

P/S remains a good metric to avoid the use of non-GAAP P/Es everywhere.

 

Why not just use P/E which does conform to GAAP?

 

the more bearish like to use price to sales because margins/tax rates/interest rates have all moved in a way that is favorable to earnings.

 

the more bullish like to use PE as simple TTM and forward PE's appear to be, for the most part, reasonable under any historical context and pretty cheap in today's rate environment.

 

The truth is probably somewhere in between. Corporations are probably over-earning, but to assume complete mean reversion in margin, interest burden or tax rates, is likely to make one overly bearish of stocks. There have been legitimate shifts in sector composition that hsould lead to structurally higher margins, the trend in lower tax and interest burden appears structural to a certain extent, etc. etc. Google should have a higher long term margin than the top index components of 2000, 1990,1980, etc. At least in my opinion.

[LC]

https://www.multpl.com/s-p-500-pe-ratio

 

This used S&P reported earnings

 

Currently at 23x earnings which is relatively high but with low interest rates and low tax rates may be justified.

[RuleNumberOne]

Yeah, I think rates cannot and will not go up. Last year we saw what happens if the Fed hikes rates. Every Eurocrat, Trump, every financial journalist, every politician, European Mutual Fund (aka IMF), Jim Cramer scream at Powell.

 

I think the collapse of the Euro is what will bring down this market. Italy's GDP office must be fudging their GDP growth figures (the last 7 quarterly reports were 0.1, -0.1, -0.1, 0.1, 0.1, 0.1, 0.1). What a  circus! Everybody was talking of the great capital gains when negative-yielding debt reached $17 T. Now everybody is silent about capital losses with the negative-yielding debt totaling $12T. $5T debt went from negative to positive in 2 months, but the Financial Times is completely silent. Only Barrons recently wrote that the 100-year Austrian bond collapsed from 210 to 168.

 

French, German, Austrian banks and pension funds own Italy's debt, third highest stock of sovereign debt in the world. Italy's GDP is lower than what it was in 2007, their demographics show a dying country. European rates cannot go up. I don't know how long Europe can cover stuff up and hold on.

 

 

https://www.multpl.com/s-p-500-pe-ratio

 

This used S&P reported earnings

 

Currently at 23x earnings which is relatively high but with low interest rates and low tax rates may be justified.

[stahleyp]

In 5 years, if rates are the same (or lower) than they are now, what do you think the market would be like?

[RuleNumberOne]

The S&P P/E is now 24.14.

 

If the stock market repeats 2019's no earnings growth, P/E expansion performance in 2020, we can achieve the 1999 P/E of 33. Just one more year, we are almost there!

 

The Fed has said no hikes in 2020. Kashkari joins Bullard on the FOMC. Both of them are competing shamelessly for the Fed Chairmanship.

 

https://www.multpl.com/s-p-500-pe-ratio

 

This used S&P reported earnings

 

Currently at 23x earnings which is relatively high but with low interest rates and low tax rates may be justified.

[Spekulatius]

Tweet of the month (imo):

https://twitter.com/capitalobserver/status/1229769517045252096?s=21

1999 dejavu - the less you think, the more money you make

;D

[Castanza]

“SPCE” maybe Beyond Meat can start making astronaut food for the voyage.

[mcliu]

But SPCE is disrupting both travel & space industries!!  ;D

SpaceX + Booking.com for only $7B market cap?

[SHDL]

So ... since the previous post, we’ve had a crisis to which the Fed might have overreacted, stocks are up a lot over the last few months, the general public seems very excited not only about the market in general but stocks that are clearly worth zero in particular, Druck capitulated, and folks are once again openly questioning what’s wrong with Warren. Plus, we just got a pretty bad Star Wars film, a Friends reunion is coming, and a new Matrix film is in production. We may be getting close!

 

[ERICOPOLY]

This is an extinction level event.

[ERICOPOLY]

 

Also, note that every Dem wants to reverse the corporate tax cuts. No other way to pay for exploding entitlements with imploding demographics.

 

While Obama was POTUS, he said that he would support a 28% corporate tax.  Biden has also mentioned 28% over the past year.

 

 

[Spekulatius]

Did bankrupt companies stocks actually pop in 1999? I don’t think so. 2020 may actually be worse than 1999:

If you think about this too much, you go

[Jurgis]

TINA! YOLO! MNGA (Make Nasdaq Great Again)!

[Guest jalebijim]

Saw this on another forum:

 

 

Right now it’s 2:30 AM, and the party is winding down. People are slowly starting to filter out the house. People are sobering up, feeling the post-high effects. However, at 2:45 walks in Jerome Powell, with bags of cocaine, Costco sized bottles of vodka/tequila.

 

The party continues. And continues. And continues. Next thing you know it’s 5AM. The party is still going. People start to crash, however, you can’t crash if you don’t stop snorting. The coke train continues. 9AM, then 1PM.

 

It’s 2:30 PM, and little does everyone know the party has a ways to go like you are in Ibiza.

 

The coke is the fucking printer. Print baby print!!!!

 

Boo yeah!!!!!!!!!!!!!!!!!!!!!!!!!!

[Spekulatius]

TINA! YOLO! MNGA (Make Nasdaq Great Again)!

 

Another anecdotal observation. They don’t buy Stocks that are about to go bankrupt because they don’t know about the impending bankruptcy, they buy them because they go bankrupt, having observed that bankruptcy often causes stocks to spike up. So now, some traders front run the bankruptcy or the bankruptcy traders.

[JRM]

I believe the appropriate trading strategy is to look up the top 5 most bought stocks on Robinhood and buy weekly lotto ticket call options. 

[Jurgis]

Moved to more appropriate thread:

 

Looking at SP500 data, 1999 earnings were ~73 ( https://www.multpl.com/s-p-500-earnings/table/by-year ), SP500 finished 1999 at ~1469. Assuming 5% growth and 15 terminal PE, this price would have given expected ~7% annual return. At today's price, SP500 expected annual return is ~5%, which is lower than what could have been expected in 1999. But the 30y treasury rates are much lower too. So it's not an easy comparison. 

 

Of course, anyone who looked at that earnings table would notice that SP500 earnings did not grow 5% per year from 1999. In fact, earnings in 2009 were lower than they were in 1999. Even going to 2019, the earnings only grew 3% annually for 20 year period. On the third hand, the estimates should be adjusted for divvies, etc like vinod1 did in his report on 2030-2040 SP500 predictions.

[stahleyp]

Earnings yield in 1999 was 3.04%.

 

10 year 4.72% in 1999

 

Current EY is 4.35% (4.25% as of Jan)

 

current 10 year .84% (1.76% in Jan)

 

So the value of stocks (compared to bonds) is a lot better now than it was in Jan.

 

Now, that doesn't mean bonds won't do better but it does give stocks the advantage.

 

For instance in 1929 EY was 5.63% and 10 year was 3.60% so crazy things do happen.

 

[Guest cherzeca]

I am unconvinced.  the stock market is a leading indicator, and in 1999, it was indicating a brave new world, with millennium enthusiasm, and this was proven false.  now, it is indicating a return to some semblance of a pre-covid economy, and while this may be proven wrong, I dont see the parallel to 1999, or even the rhyme.

[rb]

Really? Coke at 80x PE was a brave new world? Sure, sure, that's one example. But the stock market as a leading indicator is a bunch of crock. If we look at it it's not very good at predicting much of anything. overall it's somewhat more right than it is wrong. But a great indicator it is not.