zerohedge: 3rd max p/e growth

We reproduce the top part of today’s Tyler Durden post in Zero

No comment.: it’s perfect and self-contained!

Current Market Move Is Third Biggest PE Multiple Expansion Recorded In Shortest Time Ever

Submitted by Tyler Durden on 09/02/2009 22:04 -0500

EPS PE Multiple

Some historical observations: while readers may continue scratching their heads over just what the causes may have been for the torrid 5 month rally we have witnessed, two main things distinguish it among the last ten recessions stretching all the way back to 1953:

While the S&P has increased by 50% to the (to date) peak, it has done so on a -6% decline in actual EPS, implying the rally has been one of PE expansion, 66% to be precise. As the chart below demonstrates this is the third largest recorded PE expansion in history, with only the 72% PE expansion recorded in 1982 and the 78% in 1974 surpassing the current market.
Yet, what is unique about this market, is that while both 1974 and 1982 achieved their move higher in about a year (11 months for the trough to peak PE move in 1982, 16 for 1974), the S&P has hit its current PE peak a mere 5 months after the trough. This is an unprecedented record in the history of US recessions, and demonstrates just how much of a push influence Obama’s stimulus and Bernanke’s QE have had on the PE multiple alone, if not on actual EPS.
Another observation is that at a 19.9x PE through the current market peak, the market is almost 3x turns more expensive compared to the historical peak PE average of 17.1x, and was cheaper at the peak than just the recessions of 1961 (22.7x), and 1990 (21.6x). Any claims that the market is cheap at current earnings are outright lies.

At this point hope is exhausted (in the form of the PE multiple having plateaued), and any further gains will all have to come from an actual improvement in earnings. Yet for that to happen, more than just overhead will have to be cut: actual revenues will need to increase. However, with the record amount of slack still in the system, and the under investment in corporate CapEx, the probability of revenue growth at this point (and this EPS growth) is slim to none.


Published in: on September 3, 2009 at 4:21 am  Leave a Comment  

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