The most recent false panic of the Fiscal Cliff had the S&P
500 down as low as 1343 back in mid November. Bit by bit, investors
overcame the unwarranted fear to push stocks towards the highest
levels since the Great Recession.
Sure there was a little setback this Friday. That form of political
sparring over a Cliff plan is just business as usual in D.C. A deal
will be made soon enough. And stocks will continue their long term
You see, the bull market will stay on track until one of two things
1) Recession on the horizon.
2) Stocks get overvalued.
It's really not any more complicated than that. Yet I sense that
many of you are still not convinced given all the hard work of
other media outlets to scare you out of beneficial investment
decisions. So read on to discover why the bull market is on track
with new highs at 1600 in the 2013 forecast.
No Recession on the Way
The #1 cause of bear markets is a recession. In fact, the average
market decline during a recession is 34%. The last one we had was
much worse than that. So it's always beneficial to check the
economic forecast before getting long stocks.
Current US GDP = +3.1% in Q3.
That is one of the best readings in several quarters. From this
higher perch it is that much harder to knock the US economy into
Housing is Heating Up:
Economists note that typical recoveries are propelled by healthy
construction numbers. Yet, that was certainly not the case the
past few years. Now we see that coming into bloom, which will
only bolster GDP results.
They are already in recession and yet we still racked up a +3.1%
GDP result. And signs are that they will start to emerge from
their recession later in 2013. Unless they implode, then nothing
to worry about here.
Yes, a decelerating China is bad news for world growth. Gladly it
seems that after several quarters of moderating growth, things
are perking up there once again.
Add it all up and it's hard to imagine a recession emerging in
2013. Sure, GDP growth could throttle back down to +1 to 1.5%, but
that level was good enough to move stocks higher the past couple
years. And likely would be the case in 2013. Now let's turn to the
other half of the equation...
More . . .
What to Buy and Sell During the Next 30
Today, as Fiscal Cliff alarms are ringing loudly for investors,
Zacks is taking an extraordinary step. All of the real-time moves
and insights from all of our trading and investment portfolios are
opening up to you in a unique way.
However, you only have until Sunday, December 23 to get in on this
Learn more now >>
Stocks Are Undervalued
The evidence here is overwhelming. Consider that the average stock
market PE is 15. Now apply that to the $113 per share expected for
the S&P 500 next year. That computes to 1695. Even if you say
that those earnings projections are too high (which I agree is the
case), then trimming it down to a more conservative level of $105
per share still gives us an S&P level of 1575.
Now consider the landscape. The 10 year Treasury is paying a meager
1.75%. Your checking account and CDs are offering even less.
Typically the earnings yield on stocks is 3% higher than the
treasury rate. Meaning that stocks should be offering investors a
4.75% likely return.
The earnings yield is nothing more than turning the P/E ratio on
its head. So when we divide the $105 projected earnings next year
by the current S&P reading of 1430, we get a 7.34% earnings
yield. Even more abundant proof of the undervalued nature of stocks
at this time.
With all the above, I am very comfortable putting out a 2013 target
of 1600 for the S&P. That is still only an earnings yield of
6.56%. So if we get towards the end of the year with GDP in healthy
shape and no recession on the horizon, then we could even get a
good stretch above 1600.
What to Do Next?
If you have been predicting the ups and downs of the market well
over the last few years, then stick with the strategies that are
working for you. However, if you have a spotty track record, then
likely you need some assistance in charting a course to better
We here at Zacks have done exceptionally well at calling the market
direction over the last few years. Then applying the Zacks Rank,
our customers have enjoyed a steady parade of winning
Right now we have 11 outstanding portfolio recommendation services
Whisper Trader, Home Run Investor, Options Trader, Value
Reitmeister Trading Alert
Which of them best fits you?
The best way to select the service that's right for you is to try
them all. So I invite you to look into our
program, which gives you access to every one of our portfolio
recommendation services, even those currently closed to new
members. I have arranged for you to see all of our moves and
insights for the next 30 days in a special manner. But please
understand that this unique opportunity is temporary. You can only
get in on it until Sunday, December 23.
Zacks Ultimate >>
Steve is the Executive VP in charge of Zacks.com and all of its
subscription services. His personal mission is to help investors
achieve life-changing investment success by harnessing the power of
earnings estimate revisions. Over the years, he has developed a
full array of services to help investors do just that. Discover all
of these services now to find the ones that perfectly fit your
about Zacks Ultimate.
To read this article on Zacks.com click here.