Dirt cheap and worth waiting for
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-