Hulbert: 'Making Bullish Case' for Stocks 'Getting a Lot Harder'
Wednesday, 10 Sep 2014 08:45 AM
By Dan Weil
Several different measures show the stock market may face trouble ahead, says Mark Hulbert, editor of Hulbert Financial Digest.
"Making the bullish case is getting a lot harder," he writes in his MarketWatch column.
First, there's Nobel laureate economist Robert Shiller's cyclically adjusted price-earnings (CAPE) ratio, which is based on 10 years of earnings. It stands at 26.4, trailing only the levels of 1929, 1987 and 2007. Those peaks, of course, were followed by stock market crashes.
"The CAPE isn't a perfect indicator, as Shiller himself will tell you," Hulbert says. But it's not just the CAPE ratio, he notes.
Ned Davis Research ranked 43 stock markets around the world based on cyclically adjusted price-to-book ratios, price-to-cash flow ratios and price-to-dividend ratios. The United States ranked 37th on price-to-book, 39th on price-to-dividend and 36th on price-to-cash.
To be sure, "even if the bearish conclusions of these diverse indicators turn out to be right, you should know that they are long-term indicators, telling you very little about the market's near-term direction," Hulbert explains.
Goldman Sachs sees stocks rising over the short run. "We upgrade equities to overweight over three months," Goldman analysts write in a report obtained by CNBC. "We expect earnings growth, dividends, and high risk premia to support returns."
Goldman was swayed by the new easing steps announced by the European Central Bank (ECB) Thursday, including interest rate cuts and asset-backed securities purchases.
"Following the dovish ECB decisions, we now see the risk to equities from higher bond yields as less imminent," the analysts said.
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Poster Comment:
Stocks have always been the ultimate in gambling risk. Unless you are sure that you have a winner, best to stay out of it. ;)