Has the Stock Market Climbed Back Too Much, Too Quickly?

From time to time I see charts that really catch my eye. See the two charts below.

The central question is, do earnings projections looked at from a higher level really support this strong surge in equity markets that we have seen over the past several weeks?

The chart shows the progression of projected consensus trailing 12-month S&P 500 earnings per share at five different times this year: January 15, April 1, July 1, August 1 and August 15.

My focus here is the projection for the trailing 12-month earnings by the fourth quarter of 2021 (effectively 2021 earnings). One can see that on January 15 it was approximately $171 per share.

Roll forward to August 15, this same estimate had declined to around $146, a decline of $25 or nearly 15%.

The market has now rebounded not just to its prior high reached in mid-February but it is now 3% above that level.

So, investors are now paying an even higher price for 2021 earnings which are now projected to be 15% lower than where they were estimated to be near that prior market high.

I believe when looked at it in this way it should give any investor cause for concern.

The second chart, shown below, indicates the total aggregate S&P 500 return since the start of 2009 through today, alongside the increase of actual operating earnings per share (without all of the accounting gimmickry but including the profound effect of share buybacks) as well as the increase of sales per share.

Cause for concern

The numbers more or less speak for themselves, but you can see that the market gains are far greater than the core fundamental gains. Again, a cause for concern for investors.

Hard factual observations such as what I have described above should be uppermost in the minds of all investors as the market continues its incredible rebound off of its late-March bottom.

Oftentimes, simple analysis such as this only becomes clear or is of importance to investors once the downturn begins or is well underway. A proactive strategy to methodically reduce risk asset exposure as we enter record highs can do wonders insofar as preserving capital down the road.

5 Best Stocks to Buy If Biden Wins the Election

If Vice President Joe Biden wins the election on November 3, 2020, you might want to consider adding these five equities positions to your portfolio: XLU, TSLA, XLV, MLM, and

TGIF — Ending the Week with a Whimper

Everything is proceeding as I have foreseen. In Monday's "The Week Ahead — 200,000 Deaths Weigh Heavily on the Market," we knew the 200,000th American death would put Covid back

Even If the Overall Market Continues Lower, This Staple Could Maintain Its Upward Trend

Since peaking in early September, the main indices have all three stumbled for the last few weeks with the S&P and Nasdaq falling over 10% from their highs already. Three

tesla stock

TSLA Too Volatile? Two Option Strategies for Tesla Stock

Tesla Inc. (TSLA) is one of the most popular stocks amongst investors. Led by CEO Elon Musk the electric vehicle manufacturer has disrupted the transportation industry, bringing hype to a

pot stock

Pot Stock ‘Blood in the Streets’ Buy Signal Is Here

The cannabis market has been a volatile space in recent years. A wave in legalization, particularly in Canada but also through parts of the United States, led to significant growth

Use Options as Portfolio Insurance in Rocky Times

Since the beginning of September we have seen the main U.S. indices drop. There are a number of possible reasons for the decline, but more importantly I expect the increased

4 Foreign Countries Where You Can Retire On Social Security Alone

Someone once said that retirement is not the end of the road but a highway opening to a new chapter in life. Whoever said that clearly has never experienced a

We’re Beating the Index Off the March Low: Update

The Bulletproof Wealth Report model portfolio is continuing to perform well and is now up 27.4% since the inception of our monthly newsletter on April 13, 2018. Although the value

Terrible Tuesday: Fed’s Powell Says U.S. Faces Slow, Uncertain Recovery

Powell testifies before Congress today. We already know what he's going to say though, as his testimony is pre-released. Not that that will stop the market from acting shocked when

5 Best Online Banks, Highest Savings Rates for Your Buck

Finding an online bank can be difficult. Varying rates, hidden fees and simply having too many choices can cause confusion and make it hard to get started. Set aside some

Hiring a Financial Advisor: What Is a Fiduciary, and Why Should You Care?

“Fiduciary” is a funny word. You may have never heard of it until now, but you may actually have had a fiduciary in your life. More importantly, you may wish

Trading Cryptocurrency Using Limit and Stop Orders

This is the last of a five-part series to help new investors and traders start and grow a cryptocurrency account. In all five articles I’ve been using Bitcoin (BTC) in

Avatar

Gary has more than 30 years of industry experience, which includes research analysis and portfolio management for both retail and institutional accounts. He worked as a Senior Vice President at Wells Fargo Advisors and Wells Fargo Investment Institute for approximately 14 years in total, where he was a senior portfolio manager for both equity and asset allocation portfolios. He was also involved in investment manager due diligence and selection for the firm’s multi-manager portfolio models. Prior to joining Wells Fargo, Gary held senior-level investment management positions with several registered investment advisory organizations. He has been a Chartered Financial Analyst (CFA®) charter-holder since 1989. The CFA is a professional credential earned by investment management professionals after successfully passing three years of rigorous examinations and recording several years as a practising professional within the industry. Gary received his Bachelor of Science in Engineering from Purdue University and his M.B.A. in Finance from The University of Missouri. Additionally, Gary holds his FINRA SIE, Series 7 and Series 66 securities registrations as well as his Missouri Life Accident & Health insurance license. He is a member of the CFA Society of St. Louis and the Financial Executives Networking Group. He resides in Kirkwood, MO with his wife Kathy, and they have three adult age children, Aly, Ryan and Josh.