Corporate profits are headed for a record high this year; according to a survey by Bloomberg News, profits for the S&P 500 are expected to reach $104.78 per share. That would mean that profits had increased by a stunning 125 percent since the beginning of 2009. The incredible speed with which they're growing may explain why stocks have failed to keep pace.
The price/earnings ratio for the S&P 500 as a whole is now at 13.7. The historic mean for that number, figured since 1954, is 16.4, which the S&P has traded below ever since May 13, 2010, the day of the infamous "flash crash." That's 446 consecutive days in which stocks have been trading below their historic norms, the longest such stretch we've had since 1986.
There seem to be two primary explanations for this phenomenon. One: Investors haven't really processed the growth in corporate profits yet, so they haven't yet incorporated that information into stock pricing. Two: Investors don't really trust this economy or this market, at least not yet. It's probably a bit of both.
No comments:
Post a Comment