Dirt cheap and worth wait­ing for

Forbes - - Investing -

As I write this col­umn, the S&P 500 has had a tu­mul­tuous 2015, in­clud­ing a sharp down­turn in Au­gust, only to end up at about the same level it started the year. What’s worse is that the out­look for the mar­ket couldn’t be murkier. Cor­po­rate rev­enues and profts for the S&P 500 are likely to be slightly down in 2015 com­pared with 2014. How­ever, the P/E ra­tio of the S&P 500 at 18 is higher than its long-term av­er­age of 16.4. True, a good part of this higher P/E is the re­sult of the col­lapse and free fall of en­ergy stocks, many of which are los­ing money or are at very high P/ES be­cause of drops in earn­ings this year. That th­ese en­ergy stocks can come back sharply with any cut in the oil sup­ply by OPEC is cer­tainly a pos­si­bil­ity. But will it hap­pen in six months or four years?

What’s more, the Fed has be­gun to raise in­ter­est rates, and the dol­lar has strength­ened ver­sus other world cur­ren­cies, pres­sur­ing the profts of U.S. ex­porters. Of­set­ting th­ese val­u­a­tion and mon­e­tary pol­icy head­winds, how­ever, is an in­creas­ingly healthy jobs pic­ture in terms of fall­ing un­em­ploy­ment and ris­ing wages.

My pre­dic­tion is that 2016 will be a year with­out sig­nif­cant move-

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