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At least by traditional metrics, stocks are really cheap.Says Bloomberg:
Standard & Poor’s 500 Index companies will earn 18 per cent more this year than in 2010, according to the average estimate of more than 9,000 analysts compiled by Bloomberg. Higher profits haven’t stopped the gauge from falling 6.8 per cent since April 29, pushing valuations to the cheapest levels in 26 years. Even if companies posted no growth, price-earnings ratios would be lower than on 96 per cent of days in the past two decades.
Of course, it’s not so simple.
One problem is that margins are at record, and that seems unsustainable.
More broadly, confidence in the sustainability of earnings — just because of the weakening of the recovery — is on the wane.
But obviously a lot of people are making the bull case.
Bank of America recently called for the S&P to go to 1400 based on the following key reasons:
- Super low PEs
- Super low interest rates.
- The S&P’s international exposure.
- The fact that high commodity prices are bullish for the S&P.
See also: A letter to a bearish client >
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