Valuation and fundamentals

While I will continue to track the main index forward p/e and fundamentals per the Citigroup Economic surprise, because a majority of market participants ARE influenced by earnings and the strength of the economy, given the action in the bond market we have to allow that perception around valuation may change with the strong-arm influence of the central banks. 

Let's be honest, that has already happened - people wouldn't be paying 18x forward earnings in this low growth environment if bonds were paying out 5% in interest. But with interest so low, and so much global debt negative, we are seeing higher than historically appropriate prices for risk assets. Maybe at some point we will see above 18x and head up to 20x. 

For now 18x continues to cap the market as it has throughout the last 1.5 years, except the seasonally bullish Q4 in 2015 when we briefly saw up to 19x near the early November highs.

To repeat the standard statements:
Data from WSJ
Fluctuations sometimes noise sometimes real
I've been expecting resistance at SPX 18x forward earnings throughout - no change to this view

Prior week SPX forward p/e 17.92, this week only 17.87 despite a decline in price. This means earnings estimates per this data set were lower, from about 117 to about 116. Earnings estimates have been ticking down since a high value on 5/27/2016. 

Current 18x resistance is 2086, potential 17x support 1970. Other USA main indexes had similar moves.


Citigroup Economic Surprise index per Yardeni basically same condition - below the zero line. Yardeni must be using different p/e system than WSJ. As I recall the WSJ data lines up more closely to Bloomberg, and it is working, so i will stick with it.