Major ETFs weakened slightly Monday, following the lead in
In afternoon trade, the SPDR S&P 500 (
) gave back 0.06%.
SPDR Dow Jones Industrial Average (
) andPowerShares QQQ (
), a basket of the 100 largest nonfinancial stocks on the Nasdaq,
The S&P 500 is up 12.8% year to date. It's trading only
9.4% below its record high of 1565 on Oct. 9, 2007. At its record
high, the forward earnings of the S&P 500 stood at $103.62,
and the forward price-earnings ratio was 15.1, according to Ed
Yardeni, president and chief investment strategist at Yardeni
Research. Today, the forward earnings are at $110.81, while the
forward P-E is 12.7. That means the market is currently 15%
cheaper than at its record high, with earnings 7% higher than
"The three corrections over the past three years were all
triggered by worries about the Euro mess, concerns about stalling
U.S. economic growth, and fears of a hard landing in China,"
Yardeni wrote in his daily client note. "The subsequent relief
rallies occurred because 'endgame' scenarios were averted or at
least postponed by policy responses and better-than-expected
economic indicators. In addition, corporate earnings proved
remarkably resilient during the sinking spells in stock prices,
which contributed to their rebounds."
And the same fears prevail now. Furthermore, the Fed and
central banks around the world have made borrowing rates very low
to push investors to buy stocks and bonds, Yardeni added.
"Equities are building more and more strength, but with quiet,
unassuming conviction," Waverly Advisors wrote. "We believe that
many analysts are probably missing the message of the market, and
this sets the stage for a dramatic rally when sentiment does
shift." The firm is long S&P 500 futures, while shorting
The bears, on the other hand, see the summer rally as a chance
to book profits and take risk off the table on the expectation of
lackluster corporate profits in the near future. With nearly all
of the S&P 500 companies having reported earnings, the
S&P's second-quarter earnings grew 8.4% year over year,
primarily because of easy comparisons in financial stocks,
according to Thomson Reuters. If financials are excluded,
second-quarter earnings growth is merely 1.4%. Analysts expect a
0.3% decline in third quarter.
"With earnings growth having stalled, combined with signs of a
worldwide economic slowdown, our view toward stocks has become
more cautious, particularly given the summer rally we have seen,"
Regina Shafer, a vice president of fixed income investments at
San Antonio, Texas-based USAA Investment with $50 billion in
mutual fund assets, wrote in a commentary.
She's underweighted her portfolio in stocks, while
overweighting high-yield and investment-grade bonds and precious
IShares MSCI EAFE Index (
), tracking developed foreign markets, shed 0.08%.
IShares MSCI Emerging Markets Index (
) let up 0.10%.
Follow Trang Ho on Twitter