#Valuation drives the #market: which strategy for 2020 ?

“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.

Photo 05-01-2020, 15.49.38

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).

Photo 27-12-2019, 11.35.17

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.



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