If you think a few good days in the stock market signals the end of the big bad BEAR, then watch this video.

I’ve suggested in prior articles that there’s the potential for much more downside, especially as data (months, not days) begins to illuminate just how badly COVID-19, or rather our reaction to it, is damaging the economy.  Here’s an interesting chart I stumbled across that sort of uses the same simple technique I’ve described (and so accurately foretold the depth of the market’s eventual decline in early February).

S&P Earnings and Multiples

You’ll note that none of the scenarios takes us back to where we began anytime soon, which I’m afraid is wishful thinking that evidences many out there remain in the ‘denial’ stage. We need a longer term washout before we can even fathom a new bull market.  There is hope however.  Once volatility dies down and investors have accepted the new reality (the press isn’t focused on markets and moves on to some other newsworthy obsession) it’s possible we’ll see 2800 again later this year or early 2021.

My ‘other’ forecasting technique (also simple but reliable) assumes that $140 earnings  (of the three, it’s likely the most robust which suggests profits for the index are 15% lower due to the coronavirus mayhem) is at least possible; if it were an annuity (no growth beyond that) then discounted at 6% (2% risk-free rate with a generous risk premium of only 3%) we get a target of 2800 for the S&P 500 – sometime in the future.

Tagged:
About the Author

Malvin Spooner is a veteran money manager, former CEO of award-winning investment fund management boutique he founded. He authored A Maverick Investor's Guidebook which blends his experience touring across the heartland in the United States with valuable investing tips and stories. He has been quoted and published for many years in business journals, newspapers and has been featured on many television programs over his career. An avid motorcycle enthusiast, and known across Canada as a part-time musician performing rock ‘n’ roll for charity, Mal is known for his candour and non-traditional (‘maverick’) thinking when discussing financial markets. His previous book published by Insomniac Press — Resources Rock: How to Invest in the Next Global Boom in Natural Resources which he authored with Pamela Clark — predicted the resources boom back in early 2004.

1 comment

Leave a Reply