Sunday, April 22, 2007

Weekly look ahead

Good grief! 35 percent of the S&P 500 reports earnings this week. So far earnings growth has been about 5%, not nearly enough to justify the cost of half the stocks on the S&P (based on Net Present Value). Meanwhile the market has been roaring ahead as people are happy that earnings growth has been above the 3.3% projections. Beating projections is nice but growth needs to be high enough to support market value or it's all for nothing.

Given recent sentiment the dow may reach new highs this week again, but it will be interesting to see how long it takes for people to realize that 5% growth can be had with CASH these days, so stocks with 5% earnings growth are not necessarily worth high P/E ratios.


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