Tuesday , 3 December 2024

Stock Market Could Enjoy Many More Years of Big Gains! Here’s Why

It’s hard to believe there is more upside left in the stock market considering thisinvesting-3 year’s rally…[yet, while] the indices may be wildly overbought in the near term, …stocks could have a few more years of big gains ahead.

So writes Jason Cimpl (www.wyattresearch.com) in edited excerpts from his original article* entitled Read this Before Selling Stocks.

This post is presented by  Lorimer Wilson, editor of www.FinancialArticleSummariesToday.com and www.munKNEE.com and the FREE Intelligence Report newsletter (see sample here – register here) and may have been edited ([ ]), abridged (…) and/or reformatted (some sub-titles and bold/italics emphases) for the sake of clarity and brevity to ensure a fast and easy read. This paragraph must be included in any article re-posting to avoid copyright infringement.
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Cimpl goes on to say in further edited excerpts:

The rally that just won’t quit continued again last week. In fact, last Monday marked the 177th straight session without a 5% pullback, breaking the previous record stretch of 176 days set in 2010. That’s an incredible record to break.

Though the indices have risen at a fast clip, stocks remain a good value

1. Earnings Yield

The Standard & Poor’s 500 has a 5.4% earnings yield (EPS/price). Investors look at the earnings yield – as opposed to its inverse, the P/E ratio – to determine if they are being rewarded for taking extra risk so a high earnings yield lures investors into stocks, promoting further price appreciation.

For point of reference, the earnings yield has been above 6% between 2010 and 2012, while it was 1.6% and 4.6% in 2008 and 2009, respectively. All of 2008 and parts of 2009 were tough on stock prices. Conversely, most indices have glided higher during every look-back period since 2009 (the S&P 500 has gained 47% since January 2010).

Though the current 5.4% earnings yield (based on 12-month trailing EPS) isn’t high by recent historical comparisons, it’s more than twice the 10-year Treasury yield of 1.98%, meaning that stocks remain very attractive compared to government bonds.

In fact, Capital IQ reports that the S&P 500 averages an 11.8% gain during the ensuing 12 months when the earnings yield is double the 10-year bond yield. Moreover, the senior index sported gains 71% of the time when the earnings yield was at least twice that of Treasuries.  

Fed Chairman Ben Bernanke is mostly to thank for the disparity between the earnings yield and 10-year rate. The Fed has kept a lid on government interest rates, and experts aren’t expecting that strategy to shift any time soon.

Because the Fed is depressing Treasury rates, earnings are the main focus because they are more likely to change…[As] long as earnings can stay high and improve, the ratio between the earnings yield and 10-year Treasury yield will remain above two and, if history is any predictor, stock prices will move higher at a double-digit clip until that ratio contracts.  

2. Earnings Growth

Fortunately, corporate results and economic reports have been positive. Companies are surpassing analyst EPS estimates, although sales growth has been poor. The Bespoke Investment Group says that 59% of reported companies beat EPS estimates, while only 52% beat sales expectations. Though an unfriendly job atmosphere has been a wet blanket on consumer spending, corporations have cut costs, driving profitability higher.

Analysts expect EPS growth to continue this year. The consensus EPS estimate for the S&P 500 is $111 this year and $115 for 2014, leaving the index with earnings yields of 6.7% and 7%, respectively, based on current prices. That means that the S&P 500 could rise to 2,875 (more than 70% above today’s price!) next year and still have an earnings yield that’s twice that of the current 10-year Treasury rate.

Conclusion

It’s hard to believe there is more upside left, considering this year’s rally [yet, while] the indices may be wildly overbought in the near term, stocks could have a few more years of big gains ahead.

I’d recommend buying the dips because the risk-to-reward based on earnings yield favors equities.

(Editor’s Note: The author’s views and conclusions in the above article are unaltered and no personal comments have been included to maintain the integrity of the original post. Furthermore, the views, conclusions and any recommendations offered in this article are not to be construed as an endorsement of such by the editor.)
*http://www.wyattresearch.com/article/-read-this-before-selling-stocks/29839 (©2013 Wyatt Investment Research & Business Financial Publishing LLC; If you would like to learn how you can bank steady gains with well-timed investments in stocks that are ready to run… then consider taking a free, 30-day trial to our growth stock service, Top Stock Insights. You’ll discover exactly how we’re earning exceptional returns and get instant access to every special report and investment recommendation. Click here to try Top Stock Insights, free.)

Related Articles for a Balanced View:

A. Optimistic Views of the Market

1. The Stock Market: There’s NOTHING to Be Bearish About – Take a Look

investing-hold-buy-sell

There’s nothing to be bearish about regarding the stock market these days. I’ve reviewed my 9 point “Bear  Market Checklist” of indicators and it is a perfect 0-for-9. Not even one indicator on the list is even close to flashing a warning sign so pop a pill  and relax. There’s no immediate danger threatening stocks. Read More »

2. Pop a Pill & Relax ! There’s NO Immediate Danger Threatening Stocks

investing-hold-buy-sell

Right now there’s nothing to be bearish about. I say  that with conviction, because my “Bear  Market Checklist” is a perfect 0-for-9. Heck, not a single  indicator on the list is even close to flashing a  warning sign. We’ve got nothing but big whiffers! Take a look. Pop a pill  and relax. There’s no immediate danger threatening stocks. Read More »

3. Latest Action Suggests Stock Market Beginning a New Long-term Bull Market – Here’s Why

investing

There are several fundamental reasons to believe that this week’s stock market activity, where the S&P 500 has moved more than 4% above the 13-year trading range defined by the 2000 and 2007 highs, could mark the beginning of a long-term bull market and the end of the range-bound trading that has lasted for 13 years. Read More »

4. Sorry Bears – The Facts Show That the U.S. Recovery Is Legit – Here’s Why

Recovery-Recession

Today, I’m dishing on the unbelievable rebound in residential real estate, pesky  rumors about the dollar’s demise and a resurgent U.S. stock market. So let’s  get to it. Read More »

5. Stocks Are NOT In Another Bubble – Here’s Why

U.S. stocks are off to one of their best starts in years. Most indices are up 10% year to date, prompting many investors to ask: “Are we in another bubble?” The answer is no, at least when it comes to equities. Here are three reasons why:

6. Research Says Stock Market Bull Should Continue Its Run Until…

The mainstream financial press would like us to believe that because the S&P 500 and Dow 30 are at or near their record highs that it must mean we’re nearing the end of the current bull market and, as such, now must be a terrible time to buy stocks. Let’s not  jump to any conclusions, though. Instead, let’s do our own due diligence to find out. Hint:  If you’ve been stuffing cash under the mattress since the last market crash,  you might want to finally go deposit it in your brokerage account. Here’s why… Words: 420

7. These 4 Indicators Say “No Stock Market Correction Coming – Yet”

While I remain cautious on stocks and the risk trade, the technical picture shows that the uptrend to be intact and the bulls should still be given the benefit of the doubt for now. At this point, any call for a correction is at best conjecture [as evidenced by the following 4 indicators]. Words: 399; Charts: 4

8. Can Photos of 35 Swimsuit Models Be Wrong? Lastest “Swimsuit Issue Indicator” Suggests An UP Year for S&P 500!

The Swimsuit Issue Indicator says that U.S. equity markets perform better in years when an American appears on the cover of Sports Illustrated’s annual issue as opposed to years when a non-American appears on the cover. [What is the nationality of this year’s cover model? Can we expect returns above the norm or will we see a year of underperformance for the S&P 500 this year? Read on.] Words: 323 ; Table: 1

9. Bull Market in Stocks Isn’t About to End Anytime Soon! Here’s Why

As we all know, money printing always leads to inflation. It’s just a matter of figuring out which assets get inflated. This time around gold is not the only beneficiary, stocks are, too, and I’m convinced that the chart below holds the key to the end of the bull market. Words: 475; Charts: 1

10. QE Could Drive S&P 500 UP 25% in 2013 & UP Another 28% in 2014 – Here’s Why

Ever since the Dow broke the 14,000 mark and the S&P broke the 1,500 mark, even in the face of a shrinking GDP print, a lot of investors and commentators have been anxious. Some are proclaiming a rocket ride to the moon as bond money now rotates into stocks….[while] others are ringing the warning bell that this may be the beginning of the end, and a correction is likely coming. I find it a bit surprising, however, that no one is talking of the single largest driver for stocks in the past 4 years – massive monetary base expansion by the Fed. (This article does just that and concludes that the S&P 500 could well see a year end number of 1872 (+25%) and, realistically, another 28% increase in 2014 to 2387 which would represent a 60% increase from today’s level.) Words: 600; Charts: 3

11. 5 Reasons To Be Positive On Equities

For the month of January, U.S. stocks experienced the best month in more than two decades [and the Dow hit 14,009 on Feb. 1st for the first time since 2007]. Per the Stock Traders’ Almanac market indicator, the “January Barometer,” the performance of the S&P 500 Index in the first month of the year dictates where stock prices will head for the year. Let’s hope so…. [This article identifies f more solid reasons why equities should do well in 2013.] Words: 453

12. Start Investing In Equities – Your Future Self May Thank You. Here’s Why

As Winston Churchill once said: “A pessimist sees the difficulty in every opportunity; an optimist sees the opportunity in every difficulty” and in that vain I challenge all readers to fight off the negativity, see long-term opportunity in global equity markets and, most importantly, remain invested. Your future self may thank you. Words: 732; Charts: 6

13. Investors, Get Fully Invested! S&P 500 On Verge of Entering Euphoria Stage of Cyclical Bull Market

[In spite of all that is seemingly wrong with the U.S. economy] I think we are on the verge of entering the euphoria stage of this cyclical bull market where traders become convinced that QE3 is a magic elexir with no unintended consequesnces. [As such,] I see a strong acceleration and a significant and sustained breakout above the S&P 500 September high of 1475. (Words: 264 + 3 charts)

B. Pessimistic Views of the Market

1. Stock Markets Ripe for a MAJOR Selloff – Here’s Why

stockcrashimages-1

Despite bulls’ assertions otherwise, the stock markets are not cheap today.  They are quite expensive and very overbought, ripe for a serious selloff. The S&P 500 stock index now has average valuations matching the ones seen in October 2007 when the last cyclical bull topped. Valuations should be around 12x or 13x now, 13 years into this 17-year secular bear.  … Read More

2. Stock Market Will Crash Within 2 Months! Here’s Why

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The euphoria phase of the bull market that I warned about months ago is now beginning its final parabolic phase. I’m guessing we still have another 1 to 1.5 months before this runaway move finally ends. Read More »

3. S&P 500′s PEG Ratio Suggests Overvaluation & Coming Correction

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The S&P 500 index is trading at record high levels and optimism remains high with Barron’s professional money manager survey indicating a record 74% money managers being bullish on markets even at current levels. [When one] measures valuations with respect to expected growth, [however, the ensuing ratio, the PEG ratio,] suggests overvaluation at these levels. [Let me explain further.] Words: 254; Charts: 1 Read More »

4. Can S&P 500 Justify Current Level With Earnings Growth So Weak?

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The S&P 500 is trading at near record high levels on the back of liquidity glut in the financial system. I mention the liquidity factor because all other fundamental factors do not support current levels and valuations. Read More »

5. Stock Market Crash Coming, Then More QE & Then Commodity Price Spikes

Unknowingly, with QE Infinity, Bernanke has put in motion a runaway move in the stock market that will end in some kind of crash this summer. The crash will cause Bernanke to double down on QE which will trigger a spike in commodity prices. Let me explain my rationale.  Read More »

6. Don’t Get Greedy! The Greedometer Gauge Has a 100% Track Record – Here’s Its Most Recent S&P 500 Forecast

In the 7 years that the Greedometer has been used there have been zero missed calls, and zero false alarms.  The 7th warning began in January and in late February,the Greedometer gauge reached an epic 7900rpm which is marginally higher than the 7700rpm maximum reading seen 3 months prior to the S&P500 peak in October 2007. [This article outlines the development and successes of the Greedometer and the new Mini Greedometer and what they are predicting for the stock market in 2013.] Words: 1420

7. It’s Time to Apply the “Greater Fool Theory” and Sell Your Winners to All Those Fools

The Dow has surpassed its all-time record high – set in October 2007 – and the S&P 500 is not far behind? Is this the early stage of another great bull market? Let’s look back at the two previous times when the S&P 500 set new all-time highs and see if we can learn something. Wait…first put your “this time it’s different” glasses on. OK, let’s go. Words: 430; Charts: 1

8. Don’t Ignore This Fact: “Greedometer Gauge” Signals S&P 500 Drop to the 500s by July-August, 2013!

The S&P500 is likely to achieve a secular (long term) peak this month, then drop to the 500s by July-August 2013. This article explains why. Words: 180

9. This Metric Strongly Suggests a Major Correction in the S&P 500 Could Be Coming

History shows that when investors experience a rapid decline in the amount of available cash in their brokerage account to spend/invest quickly such “negative net worth” leads to major corrections in the stock market. Currently such is the case so can we expect another such decline or will it be different this time?

10. Dr. Nu Yu: Formation of S&P 500′s “Three Peaks & a Domed House” Pattern On Course

The S&P 500 is on its way to building a “Domed House” and to challenge multi-year highs, or even all-time highs, in the process. Based on the forecast of my proprietary Long Wave Index, the broad market should be in a short-term bullish time-window until March 21st/13 by which time the “roof” phase of the formation should be complete with the S&P 500 having reached a projected peak of 1570. Words: 634; Charts: 4

11.  I’m “making the call” for a market correction of 50% – or more!!

I don’t relish the job of constantly pointing out the risks to the equity markets but since few on Wall Street seem willing (or able) to do this, I’m “making the call” for a market correction, as enough variables have aligned to indicate a high likelihood of stocks heading downwards from here. Words: 1203; Charts: 6

12. Watch Out For Falling Stocks! Here’s Why

The stock markets make no sense. They have literally lost touch with reality. Divergences between fundamentals, confidence and the valuation of markets are large [and, as such,] cannot last for long….The only  question is how…and how quickly….this correction occurs. Words: 261

13. You Need to Stay in the Stock Market Despite an Impending Economic Collapse – Here’s Why

You need to stay in markets despite an impending economic collapse. [Really?! Yes, really.] Normally such an expectation would be addressed by getting out of the way of the oncoming disaster and taking ones chips off the table [but,] in this situation, there is no place to hide. Low-risk assets, like bonds and near-cash, produce little to no return…and the threat of rising interest rates and inflation make them dangerous.  Higher risk assets are unavoidable, given current conditions. [Let me explain further.] Words: 830

14. You Can Insure Your Portfolio From Potential Capital Loss – Here’s How

Most everything you’ve heard about investing from the mainstream media, your mutual fund advisor and your tax accountant is a lie. You’ve been told…that the entire point of portfolio diversification is to mitigate downside risk yet when the market experiences the inevitable decline, every sector pushes significantly lower – and your “diversified” portfolio suffers as a result, [right? Well, there IS a better way.] Hear me out. Words: 895

15. The U.S. Stock Market Is Overvalued By More Than 50%! Here’s Why

Key stock indices are becoming significantly overpriced. The value of the U.S. stock market stands at about 133% of GDP. The average for the past 60 years has been around 82%. By this measure, the U.S. stock market is overvalued by more than 50%! Words: 398

16. Stop! Don’t Forget Market Risk – Remember What Happened in 2000 & 2007/8.

Investors are more bullish now than at any time since 2002 but the current rally has not been fueled by improved prospects of actual growth and wealth creation. Instead, it’s mostly due to:

  1. investors desperate for income denied them elsewhere by central bank policies;
  2. printed stimulus cash seeking a home and
  3. sheer technical momentum

but nowhere do they seem to be considering market risk – the risk that your investment will lose value because it gets dragged down in a falling market. Words: 615

17. Insider Trading Suggests That a Market Crash Is Coming

What you are about to read below is startling. •Every time that the market has fallen in recent years, insiders have been able to get out ahead of time… •[What] is so alarming [this time round is] that corporate insiders are selling nine times as many shares as they are buying right now. •In addition, some extraordinarily large bets have just been made that will only pay off if the financial markets in the U.S. crash by the end of April. •So what does all of this mean? [Could it be that they] have insider knowledge that a market crash is coming? Evaluate the evidence below and decide for yourself. Words: 570

18. This False Stock Market Bubble Will Burst, Major Banks Will Fail & the Financial System Will Implode! Here’s Why

At some point we are going to see another wave of panic hit the financial markets like we saw back in 2008.  The false stock market bubble will burst, major banks will fail and the financial system will implode.  It could unfold something like this: Words: 660

19. Ignore Wall Street Cheerleaders: Market Technicals, Fundamentals & Other Info Says Otherwise!

[In spite of what] the typical Wall Street cheerleaders, I mean strategists, are predicting, we see the equity market ever more closer to its cyclical top, miners about to retest a major bottom and hard assets with a new catalyst. [This article analyzes 9 pieces of information, complete with charts, that show what is actually going on in the marketplace at this point in time and what the short-term future holds.] Words: 930; Charts: 8

20. 5 Sound Reasons Investors Would Be Better Off On the Sidelines Than In the Market

New year festivities have continued on the stock market even as the Christmas trees have been put away. The “death of the fiscal cliff,” not horrible job numbers and supportive comments from Mario Draghi on the other side of the pond have led to bold and bullish behaviors over the last three weeks. While no one can predict the exact peak, here are five reasons you’re better off on the sidelines than in the market.

21. These Charts Suggest a Possible +/-60% Decline in the S&P 500 by 2014

J.P. Morgan Asset Management has developed a chart showing the past two cycles in the S&P 500 highlighting peak and trough valuations. At face value it is very alarming as it suggests a potential decline of somewhere in the vicinity of 60% over the next year or two and concurs with previous innovative trend analyses included in this article. Charts: 4