The core driver of stocks in the latest rally? -- In my
opinion, a move down in the still too high
Equity Risk Premium.
S&P 500 Equity Risk Premium moved from around 6% three months
ago, to about 5.3% now.
Internals in this rally are instructive:
- I took a look at a Forward 12-month Price/Earnings ratio
chart this morning. It showed stock valuations stretched
towards a 14 level on the
S&P 500 Index
in the latest rally. Still pretty low historically.
are near one another at around a 16 P/E. In the latest
rally, Discretionary valuations moved ahead of Staples.
Consumer stocks are the growth areas of the economy and are
priced as such.
- With its relatively high free cash flow yield, investor's
search for safety pushed up
valuation. However, these defensive stock forward P/E
valuations came down of late. They are still the highest
are still the worst in terms of forward P/E ratios.
However, these stocks valuation multiples are among the
highest accelerators in the latest rally. Less fear in
Since lowering fear and adding risk is the story of rising
S&P 500 stocks, the question I have is this.
First, what LOWER RISK is taking stocks up the
(A) A lower risk of a "Fiscal Cliff" meltdown
(B) A lower risk of a China Hard Landing.
(C) A lower risk of a European Financial/Debt
(D) A lower risk of a U.S. recession.
Second, what is the most likely fear factor to REVERSE
matters this year?
SPDR-DJ IND AVG (DIA): ETF Research Reports
SPDR-GOLD TRUST (GLD): ETF Research Reports
SPDR-SP 500 TR (SPY): ETF Research Reports
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