David Rosenberg On "Fascinating Markets", Or 2011 vs 2012 vs 2013

Tyler Durden's picture

Unsure what the current blistering start for the S&P 500 means in the new year? Here is David Rosenberg putting the last two years in perspective to the last two weeks. Alas, with fat tails now solely emanating from politicians (as the Fed has guaranteed nothing wrong can ever happen again on the monetary side, until everything goes wrong of course), and politicians being inherently irrational and unpredictable, it is not exactly clear how anyone can factor for what in just one month is sure to be the biggest clash in history between two sides of a Congress that has never been more polarized.

via Gluskin Sheff

Fascinating Markets

Go to 2011 and we had corporate earnings growth and yet the S&P 500 was flat as a pancake. Why? Because between the recurring euro zone financial strains and the debt ceiling issue that summer we had a two-point compression in the P/E.

Fast forward to 2012 and we had no earnings growth at all and yet the market rallied 12%. Based on what? A 1½ point P/E multiple expansion as the global central banks moved ever more forcefully to curtail financial tail risks.

It seems to me that 2013 will find ourselves somewhere in between. It could well be argued that the market is fairly valued with a historical forward multiple of 14x-15x and call it a $100-$105 on earnings (allowing for some buybacks). That gives a 1,400 to 1.575 tradable range and right now we are smack-dab in the middle of that band.

The difference it would seem to me is that the level of enthusiasm and complacency to kick off 2013 is much higher than it was at this time of 2012 when there was much more scepticism. The VIX index at 13-and-change currently, the Market Vane sentiment survey at 68% and well more than twice as many bulls than bears in the Investors Intelligence poll results pretty well say it all.