Investing.com - Financial Markets Worldwide

Chart Of The Day: Earnings Expectations

Published 05/30/2013, 12:02 PM
Updated 07/09/2023, 06:31 AM
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Two charts today, both from Goldman Sachs and both focusing on the same topic: U.S. equity valuations.
Earnings Estimates
During the early stages of the bull market, it is difficult to find a bull, as was the case throughout 2009. That is why the old adage goes along the lines that "bull markets climb a wall of worry". However, near the end of the bull market, everyone is a bull. Expectations of higher prices and higher earnings are the consensus forecast year after year. Sometimes, expectations are so bullish that they are literally extrapolated into the sky.

Goldman Sachs Portfolio Strategy Research writes:
Our positive 2013 outlook for S&P 500 has played out much faster than we expected. Our earnings estimates remain unchanged but we raise our dividend estimates and index return forecasts for 2013 through 2015. We expect S&P 500 will rise by 5% to 1750 by year-end 2013, advance by 9% to 1900 in 2014, and climb by 10% to 2100 in 2015. Our 2013 return implies a year-end P/E of 15.0x, a one multiple point premium to our fair value estimate. We forecast dividends will rise by 30% during the next two years. Dividend yield is likely to stay around 2%, in line with the 20-year average. (highlights added)

Is The Secular Bear Market In U.S. Stocks Over?
The S&P's Forward P/E
Is the secular bear market over? Should we expect rising multiples? Goldman seems to think so. However, it is interesting to note that every other secular bear market trend eventually bottomed in single digit PE ratios, apart from the current one. Either this will be a historical anomaly falling into a "this time is different" narrative or the current secular bear market is not over just yet....

Time will tell.

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