Home Logon FTA Investment Managers Blog Subscribe About Us Contact Us

Search by Ticker, Keyword or CUSIP       
Blog Home
Bob Carey
Chief Market Strategist
X •  LinkedIn

  Equity Investors Still Have The Fundamentals On Their Side
Posted Under: Broader Stock Market
Supporting Image for Blog Post


View from the Observation Deck 

  1. Equity investors endured another pullback in the stock market recently and it was accompanied by the usual dose of scary headlines and dire predictions.
  2. From 9/18/14 (all-time high) through 10/15/14, the S&P 500 Index posted a total return of -7.28%, according to Bloomberg. From 10/15/14 through 10/27/14, however, the index was up 5.34%.
  3. In our opinion, the reason why the S&P 500 hasn't experienced a 10% or greater correction since Q3'11 is because investors have continuously bought the dips.
  4. Today, thanks to the Internet, investors have access to an abundance of information about the economy and the markets, both domestically and globally. Sifting through it all can be a daunting task.
  5. Focusing on the fundamentals is always a good place to start, in our opinion. The chart above features two key indicators that are fundamental in nature: corporate earnings and P/E ratios.  
  6. When comparing 2007 (pre-financial crisis) results with those from 2013, the thing that stands out is that the year-end P/E ratios are nearly the same (17.36 vs. 17.30), yet index earnings were considerably higher in 2013 ($84.59 vs. $106.82).
  7. As of 10/28/14, the consensus 2014 and 2015 earnings estimates for the S&P 500 from analysts tracked by Bloomberg were $120.03 and $131.47, respectively.
  8. As of 10/28/14, the consensus 2014 and 2015 P/E estimates from analysts tracked by Bloomberg were 16.42 and 14.99, respectively. The index's average P/E over the past 50 years was 16.50 (as of 10/28/14).
  9. Fundamentally speaking, investors are currently paying close to a normal market multiple for record-level earnings.

This chart is for illustrative purposes only and not indicative of any actual investment. There can be no assurance that any of the projections cited will occur. The illustration excludes the effects of taxes and brokerage commissions or other expenses incurred when investing. Investors cannot invest directly in an index. The S&P 500 Index is a capitalization-weighted index comprised of 500 stocks used to measure large-cap U.S. stock market performance.

To Download a PDF of this post, please click here.

Posted on Tuesday, October 28, 2014 @ 2:44 PM • Post Link Print this post Printer Friendly

These posts were prepared by First Trust Advisors L.P., and reflect the current opinion of the authors. They are based upon sources and data believed to be accurate and reliable. Opinions and forward looking statements expressed are subject to change without notice. This information does not constitute a solicitation or an offer to buy or sell any security.
Search Posts
Market Commentary and Analysis
Market Commentary Video
Monthly Talking Points
Quarterly Newsletter
Market Observations
Subscribe To Receive Email

Stay Calm and Focus on the Fundamentals
Stronger U.S. Economic Growth in 2015 Could Help Boost Interest in Small- and Mid-Cap Stocks
U.S. Equities’ Share Of Total Global Market Capitalization Is Growing
Back to Our Regularly Scheduled Bull Market
The Fallout From The Recent Sell-Off In The Stock Market
Retail Investors Still Leery Of U.S. Stocks
Volatility. The price you pay for better returns.
Companies Are Returning Cash To Shareholders Via Stock Dividends
They Call That A Bargain ...
A Snapshot of Growth vs. Value Investing
Skip Navigation Links.
Search by Topic
Skip Navigation Links.

The information presented is not intended to constitute an investment recommendation for, or advice to, any specific person. By providing this information, First Trust is not undertaking to give advice in any fiduciary capacity within the meaning of ERISA, the Internal Revenue Code or any other regulatory framework. Financial professionals are responsible for evaluating investment risks independently and for exercising independent judgment in determining whether investments are appropriate for their clients.
Follow First Trust:  
First Trust Portfolios L.P.  Member SIPC and FINRA. (Form CRS)   •  First Trust Advisors L.P. (Form CRS)
Home |  Important Legal Information |  Privacy Policy |  California Privacy Policy |  Business Continuity Plan |  FINRA BrokerCheck
Copyright © 2024 All rights reserved.