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 Valuations are Getting AttractiveThere is no question that earnings forecasts are too high. One way to simplify the question of valuation is to look at multiples for revenue rather than earnings. The Dow Jones Industrial Average (DJI) companies are now trading at a 0.7x multiple of revenues. Put another way, you can buy a dollar of revenues for 70 cents when you buy the Dow blue chip index. The market has not been this cheap since September 1996. Part of this story is the falling value of commodities. The national price of regular unleaded gas is now under $2 a gallon. This is about where prices were in March 2005. Lower gas prices are a huge, direct expense reduction for the American consumer and to worldwide manufacturing costs. Who knows, consumers might buy Christmas gifts rather than gas this holiday season. |
- Options News: STT, ADM November 6, 2009
- What's Hot: CVS, DPS November 5, 2009
- Sidewinder: CVS, VIA, XL November 5, 2009
- Options News: CTSH November 5, 2009
- Sidewinder: CSCO, SPY, SPLS November 4, 2009
Looking into June, the market should begin refocusing on upcoming earnings reports for evidence the economy is gaining momentum.
Watching the Treasury's Actions
In the short-term, the government's bond auction is likely to be a key driver of stocks.
Treasury Auction Boosts Market
The Treasury's auction of two-year notes brought an upside surprise which should alleviate fears of a lack of demand for U.S. paper.
Credit Markets Point to Upturn
The credit market, a reliable indicator of equity direction, suggests we will break out of the SPX's trading range to the upside.
The market seems to be saying that a 30% move up from the lows is ahead of the real economy and the market needs to allow the economy to catch up.
