Friends
On the economic front, the consumer confidence number held steady which was somewhat encouraging, while the first look at 3rd quarter GDP (remember they revise it two more times) showed the economy growing at 2% which is a little higher than expected (don’t be surprised if that is adjusted down by the last revision). All in all, the economic news was constructive for stocks, but traders seem focused on earnings right now, and that is where we are running into some problems.
As we are about 2/3 through earnings season, we are finding that we are going to have to adjust our views of fair valuation for the market in general. If we are able to hammer out $100 in S&P earnings for the year, then at over 1400 on the S&P 500 we are certainly not cheap. And if we do not get earnings growth next year then valuation will become a problem as opposed to the positive it has been for the past few years. Sure 14 times earnings for the S&P is not too bad considering where interest rates sit, but the bulls can’t use “the market is cheap” argument if earnings are stalling (God forbid falling). Will the flood of central bank easy money cause P/E expansion as stock prices are pushed up even without better earnings? That is possible as we look into 2013, but as we always harp on; we would rather have a good economy and good earnings be the reason for share prices to rise, not just easy monetary policies.
As for the markets, the week ended with a whimper as the Dow Jones Industrial Average was up a meager 3 points to close at 13,107. The S&P 500 was down a point to close at 1411. Both gold and oil were virtually unchanged, with gold finishing the week near $1713 per ounce and oil finishing near $86.15 per barrel WTI.
We’ll get back at it next week as the east coast may be bracing for a huge storm.
Have a great weekend everyone.
