Daily Investment Interpretations
February 28, 2011
(Monday): After rising falling and
then rising again into the close, the market indices all closed up on the day: Another bull month.
The NASDAQ Composite rose only 1.22
to 2,782.27. The Dow gained 95.89
to 12,226.34, while the S&P 500 climbed 7.34
to close at: 1,327.22. Oil fell to $98.46 a barrel, while Gold
ended at $1,398. The VIX dropped 0.87 points
Peter Brimelow has an article tonight entitled Modern Portfolio Theory redux? about Lewis Navellier's Emerging Growth portfolio.
Let's see what we might expect out of the current cyclical bull market by the end of 2012. (This assumes that it behaves like prior, classical cyclical bull markets.) "Classical" bull markets usually end when the price-to-earnings (P/E) ratio on the S&P 500 reaches 20-to-22, usually at a time of great exuberance, amid claims that "this time, it's different, because... " Everybody has heard about the great gains being made in the stock market, and everyone is talking investments, and giving and receiving investment advice. A current estimate for the 2012 earnings on the S&P 500 is of the order of $106 a share. At tonight's close of 1,327, $106 earnings would work out to a P/E ratio of $1,327/$106 = 12.5. Alternatively, at a P/E ratio of 20:1 at the end of 2012, that would correspond to an S&P level of about 2,120. If the P/E ratio reached 22"1, the corresponding S&P level would be about 2,335.
The crux of this is that if this recovery parallels prior recoveries... and it may not, since the circumstances surrounding The Great Recession have been uncommon... the markets may have a lot farther to go than simply recovering their October, 2007, peaks.
For what little it means (and it may mean very little considering how drastically market futures can change overnight), the markets are up a couple of tenths of a percent tonight.