This page has been archived and commenting is disabled.
Goldman Asks "Should Stocks Fear Rate Hikes?" (Spoiler Alert: Yes)
While day after day we are bombarded with musings from talking-heads proclaiming that no matter what happens in the future, buying stocks and buying moar stocks is the way to go, the data has a different story to tell. As Goldman Sachs notes, at a forward PE of 17.5x, the equity market looks more expensive today than it was during any of the last four cycles. Furthermore, as Goldman puts it, we find it more challenging to rationalize the current high PE multiples.
Via Goldman Sachs,
The PE ratio for the S&P 500 based on a 4-quarter trailing sum of earnings currently stands at 18.1x. This compares to values of 13.6x, 16.1x, 29.0x and 19.1x at the start of the last four hiking cycles, respectively. When the PE ratio is based on an estimated 4-quarter forward sum – which is the valuation metric preferred by our equity strategists – equities look even more expensive. At a forward PE of 17.5x, the equity market looks more expensive today than it was during any of the last four cycles except for hikes than began during the tech bubble of the late 1990s.
In contrast to Treasury term premia, for which it is easy to tell “fundamental” stories that can explain why the term premia are low (even if we declined to attempt this empirically), we find it more challenging to rationalize high PE multiples. A fundamentally-based argument would need to argue that relative to past rate-hike cycles, some combination of the following three factors would presumably need to hold true: that expected growth is higher, equity risk premia are lower, and/or risk-free discount rates are lower.
Of these three possible arguments for high PEs, the latter is the easiest to make, because long-run risk-free interest rates are, in fact, extraordinarily low. Indeed, it is common to hear that equities are the “least-bad” investment option in such a low-yield world, which is just the colloquial version of the valuation math. That said, if term premia are low due to low and falling inflation risk, and if equities hedge inflation risk better than fixed-coupon bonds, then the drop in term premia doesn’t necessarily imply higher equity PE multiples. The links between bond premia and equity premia are subtle; one needn’t imply the other.
The remaining ways to justify a high PE are to argue either that long-run potential growth rates for real GDP or that equity risk premia are higher today than in past rate-hike cycles. While growth expectations are difficult to judge, it’s our view that the poor growth performance of the post-crisis period has done more to foster pessimism than optimism; “secular stagnation” is the theme du jour.
* * *
Translation: Stocks are anything but cheap and are anything but prepared for a rate hike.
»
- 12226 reads
- Printer-friendly version
- Send to friend
- advertisements -
laying the ground work for Armageddon!
Remember none of these was built on a FED(and world's central banks) Cash orgasm!
Tyler and the rich want to set up a gold standard to rape you even harder. Why do you think this website will never tell you about 9/11? Why is it ZeroHedge will never tell you what a local currency would do to the bankers? Or the inflation caused by fractional reserve lending, which is 10 times more money printing than the Federal Reserve does?
Most of you slaves are too far gone for this to compute. You desire your own repression. They raped you with bitcoins but you take it like you enjoyed it and want some more. It's not complicated. They are going to confiscate your gold after you consent to a gold standard. AGAIN.
https://www.youtube.com/watch?v=iDtBSiI13fE
"Should Stocks Fear Rate Hikes?"
Not to worry...
Don't fear something that will NOT happen.
The Fed is NOT going to raise rates...
They're deathly afraid of what will happen if they do.
Stocks, not being self aware, can't really fear anything.
Setting aside that peculiar stupidity, the answer is yes, but NOT AS MUCH AS BONDS.
The problem is that if anything happens they will have NO room for manoeuvre if they don't raise them. Other than maybe MOAR QE?
They're painted into a corner and there's no way out.
DavidC
Since I started freelancing I've been bringing in $90 bucks/h… I sit at home and i am doing my work from my laptop. Th? best thing is that i get more time to spent with my family and with my kids and in the same time i can earn enough to support them... You can do it too. Start here... www.globe-report.com
I wish I could get someone to buy my business at 17.5x. I will sell you 100% of shares. Maybe that fucktard Cramer is interested?
When even the squid tells you to get out, you need to start listening. They don't need the retail fuckwads to "sell Goldman their shares."
This is part of their code.
Tell the sheep you're going to shear them before you shear them. They've fulfilled their obligation to us now, if we're too stupid to listen, they'll laugh even harder as they do their shearing.
the Fucking stock market is NEVER GOING DOWN EVER!!!!!!
All will return to normal when the dollar is replaced with a new shit dollar.
It may be issued 1 for 1, but will immediately collapse in value.
Why? Because it wont have global reserve status anymore.
It will be shunned like a leper colony.
Then watch inflation soar us into the third world.
bs from goldman again.
Maybe not in dollar terms. But in terms of purchasing power of said dollars vis-a-vis real money, most likely it will.
BUYBACKS are NOT real earnings ! 17.5 is legal fraud.
the squid controls the fed which controls the market, therefore, the squid knows exactly what will happen. it's good to be a tbtf squid holding company with a gubbermint guaranteed profit of which they keep 90% as a bonus.
power has been moved out of the ny fed and to DC. The NY boys are not as they were.
so said Charles XVI...at some point enough is enough
Who keeps making up these FAKE forward PE's Tyler? http://www.multpl.com/
Seriously, every fucking time the markets make a new "nominal" high the P/E ratios drop.
Caughing* caugh*so hard I might drop a lung, BUYBACKS...
I used to like this site but the reality is the majority of the articles are written by whiny little bxxtches, what a shame, the original intent was good
Bullshit alert
Bullshit alert
As soon as I saw P/E comparisons I stopped reading. No fundamental factor in this market can be compared to any other fundamental factor. The central banks are in charge. Like my favorite Metallica song "Nothing Else Matters'
There was a woman on CNBC or Bloomberg today stating just that. She said that P/E is irrelevent and that only the FED and other central bank actions matter.
China may show us mercy if we kill all the Nazis and Satanists.
Until we do, the USA is about to become a leper colony of isolation.
An island of the damned.
No one trusts the USA anymore since 911.
Wake up fools.
friggin embarrassing to even have this conversation. 6.5 years in ZIRP and we can't raise rates to 0.25%. I was told the obama-conomy had us in recovery. I was told we had the best job growth since bubba clinton was in office. SPY are 60+% above their previous all-time high so if not now, when the fugg is a good time to raise?
they aren't gonna raise because if they do, the pensions that MANDATE 8% per year are fucked if the market has 1 or multi years of flat (or dare I say down) dow, spy, nasdaq. they can't raise rates to the level they were at in the 70's-early 90's where these guys had alternatives to diversify into & offset risk. no-where else to go.
they're gonna keep this party going until they HAVE TO raise rates and when that happens, they'll break all global markets.
It's nice to see usd/jpy is being manipluated in Asia. The trade has moved 10-15 pips and all the commodity currency crosses, are down 50 pips. LMFAO.
This is overflow people. This is BoJ manipulations. That aud/jpy buying was nuts last night.
The SNB must be shitting bricks about now. All those cheap euros are used up, to hedge the USD against. Ohh. well, they can load up on GBP. OOPs they already did that!
I might short some Cable later. ;-)
In reality were already 20x earnings (S&P) and if things get headwindier we'll be at 25 in a heartbeat.
I'm still thinking the FED will raise rates in the first quarter of two thousand and fucking never. Thanks for the sage advice Goldman, I feel like you guys are really trustworthy and your integrity over the years, prove to me that everything you do is above board. I appreciate the fact that your crack staff is looking out for me and other investors. Again thanks in advance.
I buy whatever GS recommends selling.
Just another example of typical institutional thinking: 'the market is always right so let's try to work out how it's right this time' rather than stating the obvious: the market is in a bubble and will crash (not a good marketing strategy). If Goldman analysts can barely fathom why the market is valued where it is, then what chance all the less well informed investors contributing to price discovery - and it's this uninformed price discovery that Goldman thinks is the 'market always being right'. (Head scratching). The reason this happens every time? Time. Like the quote says: 'oh yes, I'm absolutely a long term investor...and then an hour goes by'.
Easy fix for this... they wont hike rates!
well it's all over now...
Zerohedge qouted in the zombie media CBC
The financial website Zerohedge didn't use the Z-word, but its description of the global phenomenon was almost the same as the one The Economist used for Japan.
"By keeping rates artificially suppressed," said Zerohedge, "the central banks of the world effectively make it impossible for the market to purge itself of inefficient actors and loss-making enterprises."