Sorry!! The article you are trying to read is not available now.
Thank you very much;
you're only a step away from
downloading your reports.

Market Bottom? What Market Bottom?


Nevertheless, investors should be looking for new opportunities.

Inquiring minds keep asking: "Is the bottom in?" Of course, no one knows for sure. However, I believe it's not, and one of the reasons is the complete collapse in S&P earnings.

Earnings Estimates

In Is That Recovery We See?, John Mauldin posted the following chart of earnings estimates.

The S&P closed Thursday at 888. That's a richly priced PE of 31. Let's assume that earnings recover to $48. That's still a richly priced PE of 18.5. A bear-market bottom might sport a PE of 10-12, but let's be generous and use 15.

15 x $28.51 would put the S&P 500 at 382!

Let's be more generous and use an earnings estimate of $48. 15 x $48 would put the S&P 500 at 720!

No matter how you slice and dice things, fundamentally, the stock market is very pricey.

Looking For Leaders

For the sake of argument, let's assume that for whatever reason, the bottom is in. What sectors should one prefer?

To help decide, let's take a look at some historical charts of the 2000 NASDAQ bubble.

Intel (INTC) Monthly

Click to enlarge

Cisco (CSCO) Monthly

Click to enlarge

JDS Uniphase (JDSU) Monthly

Click to enlarge

Microsoft (MSFT) Monthly

Click to enlarge

Many leaders of the tech bubble had an initial rebound after the bubble popped. Those leaders then languished for years to come. Many other technology stocks didn't survive at all. To be fair, there are some huge success stories - like Apple (AAPL). However, Apple remade itself in a new space rather than by competing in computers.

Credit Housing Bubble Aftermath

Financial stocks were the leaders in the housing and credit bubble that just popped. Here are a few of the survivors the Fed is protecting, with an additional homebuilder thrown in for good measure.

Citigroup (C) Monthly

Click to enlarge

Bank of America (BAC) Monthly

Click to enlarge

Wells Fargo (WFC) Monthly

Click to enlarge

Toll Brothers (TOL) Monthly

Click to enlarge

Search For Leadership

There was some serious money that could have been made with excellent timing in the financial sector this spring. However, that's an opportunity gone by, and not worth dwelling on. Besides, opportunities are easier to make up than losses.

Looking ahead, it's difficult to say what sectors will lead the next bull market (energy, alternative energy, gold, pharmaceuticals, etc. are all possible candidates). But whatever the leaders will be, financials and homebuilders aren't good candidates.

Investors should look for new opportunities, as history strongly suggests the last bubble will not be re-blown.
< Previous
  • 1
Next >
No positions in stocks mentioned.
The information on this website solely reflects the analysis of or opinion about the performance of securities and financial markets by the writers whose articles appear on the site. The views expressed by the writers are not necessarily the views of Minyanville Media, Inc. or members of its management. Nothing contained on the website is intended to constitute a recommendation or advice addressed to an individual investor or category of investors to purchase, sell or hold any security, or to take any action with respect to the prospective movement of the securities markets or to solicit the purchase or sale of any security. Any investment decisions must be made by the reader either individually or in consultation with his or her investment professional. Minyanville writers and staff may trade or hold positions in securities that are discussed in articles appearing on the website. Writers of articles are required to disclose whether they have a position in any stock or fund discussed in an article, but are not permitted to disclose the size or direction of the position. Nothing on this website is intended to solicit business of any kind for a writer's business or fund. Minyanville management and staff as well as contributing writers will not respond to emails or other communications requesting investment advice.

Copyright 2011 Minyanville Media, Inc. All Rights Reserved.
Featured Videos