Tags: Reeves | Einhorn | stocks | earnings

MarketWatch's Reeves: Frothy Valuations, Weak Earnings May Derail Stocks

By    |   Thursday, 23 April 2015 08:40 AM

Though the S&P 500 index stands less than 1 percent from its record high, many experts see danger ahead. You can add MarketWatch columnist Jeff Reeves to that group.

"I remain a long-term bull and extremely optimistic about the U.S. recovery for this year and beyond," he writes. "But that doesn’t mean denying the risks that threaten the economy and stocks."

Among the ones he mentions:
  • "Valuations are stretched." Robert Shiller's cyclically adjusted price-earnings ratio for the S&P 500, which includes 10 years of earnings, stands at 27.4. That trails only the pre-market crash levels of 1929, 2000 and 2007.
  • "Earnings pressure." Analysts expect a first-quarter profit drop of 4.1 percent for the S&P 500, according to FactSet. "Taken alongside valuation concerns, investors should take this Q1 earnings season quite seriously," Reeves says.
  • "Retail sales still challenged." They fell in three of the last four months, and rose by a smaller-than-expected 0.9 percent in March.
Meanwhile, hedge fund star David Einhorn, president of Greenlight Capital, presents a compelling negative case for stocks in a recent letter to shareholders, citing some of the same factors as Reeves.

"Even if this quarter’s S&P earnings will ultimately be somewhat better than negative 5 percent versus the first quarter of 2014, this level of earnings degradation poses a risk to a market trading at a premium multiple of earnings assisted by record high margins," Einhorn writes.

"Some of these challenges are well known, including lower energy prices and a stronger dollar," he explains. "Less discussed is the productivity bust and its impact on peak margins."

U.S. oil prices have plunged 47 percent since late June to $56.59 a barrel Wednesday afternoon. The Dollar Index, which measures the greenback against six major currencies, hit a 12-year high last month. And productivity fell at a 1.8 percent annual rate in the fourth quarter.

Bottom line: "we think the market is too high if earnings have, in fact, peaked for the cycle, and we have reduced our net exposure by adding more shorts," Einhorn says.

Related Stories:



© 2019 Newsmax Finance. All rights reserved.

   
1Like our page
2Share
StreetTalk
Though the S P 500 index stands less than 1 percent from its record high, many experts see danger ahead. You can add MarketWatch columnist Jeff Reeves to that group.
Reeves, Einhorn, stocks, earnings
365
2015-40-23
Thursday, 23 April 2015 08:40 AM
Newsmax Media, Inc.
 

Newsmax, Moneynews, Newsmax Health, and Independent. American. are registered trademarks of Newsmax Media, Inc. Newsmax TV, and Newsmax World are trademarks of Newsmax Media, Inc.

NEWSMAX.COM
MONEYNEWS.COM
© Newsmax Media, Inc.
All Rights Reserved