2/3/2015 – A mixed day with the Dow Jones up 183 points (+1.13%) and the Nasdaq down 13 points (-0.28%)
It is quite extraordinary, but the stock market hasn’t really discounted the economic and earnings headwinds we are about to experience. Case and point….
Based on current valuations, the prices of most stocks don’t appear to have factored in a recession scenario, “hence the downside should we see a recession could be rather severe,” RBC Capital Markets’ global equity team wrote in a research note to clients.
Applying a stress test to their coverage universe, using worst-case, price-to-earnings valuations seen during the 2008-to-2009 recession, RBC analysts said they believe the shares of most companies could still fall another 50% or more from current levels.
Bingo.
Nearly half of S&P 500 companies have now reported fourth-quarter results through Tuesday morning, and earnings-per-share is headed for a 5.8% decline on the year, according to FactSet, compared with an estimated 5.7% decline as of Friday. That’s the data provider’s blended growth rate, which combines those companies that have reported with the estimates for the rest.
That leaves us with one of two possibilities. Either the stock market will accelerate down, in an attempt to catch up to this economic/earnings reality -OR- we are about to experience some sort of a miraculous recovery. And while Janet Yellen surely prays for the latter, I do not believe in miracles.
Here is the only chart investors should care about.
It is as simple as that. The stock market is selling at extreme valuation levels (just behind 1929, 2000 and 2007 tops), while the economy/earnings are decelerating at a fast pace. And if I have to explain to you what happens next, well, you shouldn’t be in the stock market in the first place.
This conclusion is further supported by my mathematical and timing work. It clearly shows a severe bear market between 2015-2017. In fact, when it starts it will very quickly retrace most of the gains accrued over the last few years. If you would be interested in learning when the bear market of 2015-2017 will start (to the day) and its internal composition, please CLICK HERE.
(***Please Note: A bear market might have started already, I am simply not disclosing this information. Due to my obligations to my Subscribers I am unable to provide you with more exact forecasts. In fact, I am being “Wishy Washy” at best with my FREE daily updates here. If you would be interested in exact forecasts, dates, times and precise daily coverage, please Click Here). Daily Stock Market Update. February 3rd, 2016 InvestWithAlex.com
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