Las bolsas estadounidenses les cuesta
mucho bajar. Hay mucho optimismo de manera habitual. Pero acaban por claudicar,
como ha pasado estas semanas. Había excesos, no habían corregido como lo
hicieran durante todo el año las europeas y emergentes, seguían obnubilados por
los mensajes positivos de Trump, y la sensación de que podía con todo. Las
FAANG parecía que solo podían subir… Y ahora hemos vuelto a la realidad de lo
que es habitual. Las bolsas suben y bajan, al margen de lo que unos quieran o
no…
Y volvemos a lo que importa,
las valoraciones. Y estas, tras la bajada de Wall Street, son atractivas. En
Europa mucho más si cabe, ya te lo conté en los últimos mensajes. (nosotros
andamos comprando en Europa con insistencia):
With the price plunge which started in early October, the PE ratio of
the S&P 500 (using Bloomberg's measure, which is based on 12-mo. trailing
earnings from continuing operations) has fallen from a high of 23.3 last
January to 16.48 currently. To put this into perspective, consider that today's
PE ratio is below the 60-yr average of this measure (16.9),
and it is about equal to the market's PE ratio just prior to the onset of the
Great Recession. Relative to the current yield on 10-yr Treasuries (2.79%),
stocks now boast an earnings yield (the inverse of the PE ratio ) which is 3.3
percentage points higher, whereas it was only 2 percentage points higher at the
end of 2007, and it has averaged only 0.4% over the past 60 years. Looking
ahead, the S&P 500 is priced to a mere 14.2 times 1-yr forward expected
earnings. In short, and during the course of a year in which the economy has
grown 3%, stocks have fallen from an arguably over-valued level to now outright
cheap. And the Fed hasn't even begun to tighten monetary policy (though the
market certainly fears they will).
Clearly, the market has lost a tremendous amount of confidence in the
staying power of earnings and the health of the economy. Otherwise, stocks
today would be a screaming buy relative to just about any other risk asset.
Sure, there are lots things to worry about: Trump, China, tariff wars, a US
slowdown, and another government "shutdown." But there is nothing
preordained about how these worries will be resolved. Lots of things can
change, and meanwhile the economy's fundamentals remain rather healthy (fabulous
corporate profits, very low unemployment, rising wages, a reasonably strong
dollar, unusually high consumer confidence, and very low swap spreads). It's
not hard to be optimistic when the market is suddenly so pessimistic.
Chart #1
As Chart #1 shows, PE ratios last January climbed to a high of just over
23 on the strength of corporate tax cuts (and the promise of higher after-tax
earnings). Now that the tax cuts are a reality and we've seen the growth in
corporate profits, It makes sense for PE ratios to back off a bit. But to a
level that is below the long-term average?
Chart #2
Chart #2 shows the difference between the earnings yield on stocks (the
inverse of the PE ratio, and the dividend yield that would accompany stocks if
corporations paid out all current earnings in the form of dividends), and the
risk-free yield on 10-yr Treasury bonds, is 3.3%. Investors currently demand an
additional 330 bps of yield in order to accept the perceived additional risk of
stocks vis a vis Treasuries. More often than not, however, the equity
risk premium is far lower than it is today. During the boom times of the 80s
and 90s, the equity risk premium was negative. Investors were so
confident in the stock market that they were willing to give up yield in order
to benefit from an expected price appreciation. Once again, investors are
consumed by pessimism and fear.
Chart #3
Chart #3 shows the latest estimate of after-tax corporate profits (this
accompanied last week's revision to Q3/18 GDP figures). Profits surged some 20%
in the year ending last September. Similarly, 12-month trailing reported (GAAP)
profits grew almost 23% in the year ending last November. And now the market
seems to be thinking that all of this will go up in smoke.
Chart #4
Chart #4 shows the ratio of corporate profits to GDP (using the ratio of
the two lines in Chart #3). Profits have been running at the historically
unprecedented level of 10% of GDP for most of the past 9 years. Maybe this is
unlikely to continue; maybe profits fall back to 8% of GDP. That would still be
well above the long-term average. Why shouldn't PE ratios also trade above
their long-term average, especially considering the generally low level of
interest rates?
Chart #5
Chart #5 compares the earnings yield on stocks to the yield on BAA
corporate bonds (a decent proxy for all corporate bond yields). Corporate
bondholders get first claim on corporate profits, with equity holders last in
line. Since the yield on corporate bonds is a safer yield than the yield
promised to equity holders, corporate bond yields typically trade below equity
yields. The periods during which the reverse holds (i.e., when equity yields
exceed bond yields) were generally dominated by fear: e.g., the late 1970s, and
the years following the Great Recession, and now.
Chart #6
Chart #6 compares the market's worry levels (the Vix/10-yr ratio) to the
level of stock prices. We're deep within another bout of anxiety, and prices
have fallen some 18% from their recent all-time high. It's not hard to imagine
fear reaching even higher levels—commensurate with prior episodes of panic
attacks—and prices even lower levels. But at today's levels prices are
"vulnerable" to any good news. Maybe the Fed will reconsider
its plan to raise rates twice next year; maybe China will deal (actually they
already are offering concessions); maybe the government shutdown won't prove
any more painful than before.
Some words of wisdom distilled from several famous investors: 1) The
price of a stock is only important on the day you have to sell it. 2) One
should delight when stocks become cheap, not despair.
UPDATE (12/24/18: 10:00 PST) Looks like the panic is close to reaching
levels associated with the worst of past selloffs. Here's the latest version of
Chart #6:
El mercado a la baja será
parado metiendo dinero a estos precios atractivos por parte de las manos
fuertes. Esto provocará cierre de posiciones cortas que hará que el rebote sea
más intenso. Y luego volveremos a la tendencia lateral que creo no hemos
perdido.
Le faltaba este tramo a la baja
a Wall Street. Ya lo tenemos. Ahora, y me temo que para muchos años, nos
moveremos de manera lateral entre los minimos que se marquen estos días (gran
oportunidad de compra) y los altos de este año, que se tardarán en volver a
alcanzar. Pero sí que volveremos pronto a los puntos medios de este canal
lateral que estamos delineando.
Abrazos,
PD1: Este trimestre ha sido
desastroso para Wall Street. Esto es lo que ha pasado en otras caídas de los
mercados, rebotan y con cierta intensidad:
Y si cogemos un periodo más
largo:
PD2: Feliz Navidad!!!
