Tags: Crudele | S&P 500 | earnings | stock

NY Post's Crudele: S&P 500 Probably 20 Percent Overvalued

By    |   Tuesday, 17 February 2015 12:16 PM

The S&P 500 index may be flirting with record highs Monday, but that doesn't mean it will stay there, says New York Post columnist John Crudele.

"Just how big is the bubble the market now finds itself in?" he asks rhetorically. "The S&P 500 is probably 20 percent higher than it should be based on fundamentals — like the fundamental of corporate profits."

The 391 S&P 500 companies that have reported fourth-quarter earnings so far registered blended profit growth of only 3.1 percent, FactSet reports.

Crudele's math: at Friday’s close of 2,096.99, the S&P 500 was trading at a forward price-earnings ratio of 17.3. But the historical average is only 13.8.

That implies a 20 percent drop for the S&P 500 to return to the average. And that would put the index at 1,678.

"Remember, if there is a rout in stocks (as has happened in the oil market), there’s no guarantee that prices won’t go lower than that," Crudele writes.

His advice to investors: "be careful putting any more of your hard-earned money into the stock market."

Morgan Housel, columnist for the Motley Fool, is much more upbeat.

"For all the compelling arguments that stocks are poised for a fall in 2015, there is a case to be made that stocks will resume their rise," he writes in The Wall Street Journal.

Some reasons why:
  • Dividends are climbing in sync with share prices. "That is an indication that the bull market has drawn support from the cash that U.S. companies are generating," Housel says.
  • The Federal Reserve is in no rush to raise interest rates.
  • "The last six times the S&P 500 produced negative annual returns, including dividends, the U.S. economy was in or near recession," Housel writes. That's not the case now.

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The S&P 500 index may be flirting with record highs Monday, but that doesn't mean it will stay there, says New York Post columnist John Crudele.
Crudele, S&P 500, earnings, stock
295
2015-16-17
Tuesday, 17 February 2015 12:16 PM
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