Revisiting the Best and Worst of the S&P 500 in 2010

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A few weeks ago I examined the top and bottom twenty stocks in the S&P 500 for 2010. Periodically over the course of 2011 I will be updating the performance

Robert Shiller’s S&P 500 Forecast for 2020: Is He Overly Optimistic?

Robert Shiller was on CNBC New Year’s Eve to make his forecast for the S&P 500 index in 2020.  His best guess is a 1430 level which works out to 14% price appreciation over the next ten years or 1.3% annually. Taking no issue with the P/E multiple he uses but only analyzing the earning forecast I believe he may be slightly optimistic. He arrives at the 1430 level as follows:

• Real earnings in 2020 are 78.20 per share. He is assuming real earnings growth of 1.5% per year which is the long-term average.
• CAPE (cyclically adjusted price earnings) or PE10 ratio of 15. This is the 1890-1990 average P/E. He excludes the “bubble” years of 1990-2010 which would inflate the average P/E to 16.
• Annual inflation of 2%
• Result is a 1430 level on the S&P.

This is hardly an overwhelmingly optimistic forecast but

The Best and Worst of the S&P 500 in 2010

As an investor with contrarian tendencies I am always scanning sectors and stocks that may have underperformed in the past looking for solid values. With this in mind I present the best and worst of the S&P 500 from 2010.

Sentiment Update: A Warning From the Not Too Distant Past

“Be fearful when others are greedy and greedy when others are fearful” ~Warren Buffett

The NAAIM (active money managers) survey for this week showed a sizable increase in bullish sentiment while the AAII (individual investors) survey showed a decrease in bullish sentiment. This week, with both sentiment surveys near[1]or higher than one standard deviation above their historical averages we will look at a warning from past surveys.

Corporate Profits: What the Current Level Tells Us About S&P 500 Returns Over the Next Five Years

Last week, in his weekly market comment, John Hussman posted an interesting chart (see below) comparing the corporate profit to GDP ratio and the subsequent growth rate in corporate profits. I have previously posted on profit margins (see here and here) and will now further explore what profits margins at current levels imply about the next five years for the S&P 500 index.

But first a question: why is the current level of corporate profit margins so important?

When looking at the market through a P/E (Price divided by earnings) framework it becomes obvious that any price appreciation, by definition, must come from an expansion in the P/E multiple, an increase in earnings or both. Experts disagree on what, exactly cause an expansion or contraction in the P/E multiple but the general consensus is that it is due to the level of inflation, interest rates, investor sentiment or a combination of the three.