The New Normal In Nine Charts

Tyler Durden's picture

From macro to micro; from momentum to valuation; and from money supply to expectations, the 'new normal' in which investors find themselves is one currently dislocated and 'different' from the past. However, as we have seen all too often in the past, these dislocations do not last forever. And with positioning (here, here, and here) as bullish as its ever been, it seems there is little room for error in economic reality catching up to stocks 'hope'-filled expectations.

 

Top-Down - US equity valuation appears notably divergent from New Orders...

 

and overall macro performance...

 

which both seem to indicate a 12.5x Fwd P/E is more appropriate than ~14x?

Especially as Revenue Growth looks dismally recession-prone...

 

as does the stagnant earnings growth...

 

with margins appearing to have topped out...

 

and the situation going forward is nothing but awful as negative pre-announcements continue to surge...

 

which leaves the S&P 500 looking anything but cheap against 40 year average valuations.

As Barclays' Barry Knapp notes, relative to historical valuation metrics, equities look modestly cheap to cash flow (low capex is the likely reason), fair to earnings metrics and notably elevated to balance sheet and debt based measures (EV).

 

which, given how weak revenue growth is looking this quarter, leads him to continue to believe current implied EPS growth (~18%), well above Barclays' 7% estimate, is too high.

 

But, in the new normal, a drop back to the reality of 1325 on the S&P 500 seems so out of the realm of possibilities to most buy- and sell-side strategists as to be worthy of ridicule; as opposed to the likes of Gross, Dalio, Singer, Grant, Bass, and Klarman who all see our current farce for what it is - entirely unsustainable!!

When all that seems to matter (as clearly macro-, micro-, and flows do not) is the ninth chart... global central bank largesse...

 

Though of course, there is a limit to what 'valuation' even the greatest fool will stand (unless the whole market becomes AMZN)...

 

Charts: Bloomberg and Barclays

Bonus 10th Chart: The Long-Term trend on the S&P 500 seems to be stifling progress for now...as the pump-effect is having less and less impact (flatter and flatter slopes of nominal recovery)...