“Stocks follow earnings”, says the old adage: even in this past 2019 which has seen great returns in multiple indices, it seems to describe the market behaviour well. If one compares the S&P500 earnings with the S&P500 growth, the correlation is quite clear and an indication that this growth is not unjustified.
On the flipside, can the same be said about the earnings themselves ? We commented before on the fact that earnings have partly been fueled by liquidity.
The PEG ratio of the S&P500 is much greater than 1 (with 1 meaning a future growth perfectly priced in the current stock value).
While earnings are the expected to grow also in 2020, a value investor will have to pick the right stocks to beat the market as the current P/E already appears to price in future earnings.
Even more now it is important to be a stock-picker. A recent example of a seemingly undervalued stock has been provided here.
The correlation between the balance sheet and the stock market is clear, here expressed in terms of global #liquidity superimposed to the #S&P500.
Both the #ECB and the #FED have been injecting liquidity into the market which has resulted in the appreciation of #assets, rather than or only marginally in actual growth.
This is indeed the main argument against these “helicopter money” initiatives – that they result in #stock #buybacks rather than new investments aimed at growing the real economy.
How long can it last for ?
Something must be stirring at #Brystol-Myers Squibb $BMY considering the projected #earnings growth for the next year. This #value company had done very little over the past years compared to the stock market until this past half of 2019. Going forward it predicts a significant #EPS #growth which makes its #PEG ratio <1. Overall it looks very promising considering it is also a generous #dividend payer.
Notwithstanding the #tradewar both $DE and $CAT are up more than 15% over the last year but #Deere has outperformed #Caterpillar by 5% (including #dividends)