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Earnings Yield On S&P 500 Points To Higher Levels By End Of 2014
Posted by Derek Tomczyk on Jun 9, 2014 - 12:00am
When interest rates are lower, the cost of capital is lower, therefore borrowing is cheaper and on the flip side lending money through the purchase of bonds yields a lower return. This should generaly support higher equity prices, but by how much? What is a reasonable valuation? Click below to find out.
Earnings Yield On S&P 500 Points To Higher Levels By End Of 2014
While I try to stick to the facts throughout the rest of the web site the blog is the "unplugged" piece and is entirely my personal opinion which is very likely wrong and should definitely not be used for making investment decisions.
The S&P 500 Still Not Overvalued Taking Into Account Interest Rate Environment
What we see is that outside of the depths of the 2008 financial crisis, the S&P 500 is still the cheapest it has been since around 1988. What is also evident is that the bull market that followed 1988 drove stock valuations to extremely overvalued levels but did not actually end until 2001.
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Earnings Yield On S&P 500 Points To Higher Levels By End Of 2014
In a lower interest rate environment the required return on capital on equity investments should be lower than would otherwise be the case. The longer this environment is expected to persist the lower the required rate of return on perpetuities such as equities would logically be.
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The Odds for a NASDAQ 100 rebound
The probability of a large loss on QQQ by June 21st, in direct contrast to IBB, is far below normal so exposing yourself to the risk is a better choice than paying a premium for protection. There is a also a larger than normal probability of a return up to 9% so a leveraged position may a good choice at this time. Therefore much better opportunities for a call option positions out of the money lie in the May 17th option chain.
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The Sell Off in Biotech is Coming to an End
The stats also tell us that the odds are tilted in the favor of IBB for a holding period ending on June 21st. The probability of a positive investment return is above normal and the average rally is above normal. However, the risk of taking an outright IBB position is also above normal with an average drop of 15.1% in case of a negative return.
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The Odds 2014 Will Be Just As Good As 2013
After a great year for the S&P 500 (SPY) in 2013, it's natural to wonder whether that type of pace can be maintained going forward into next year.
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The home page has been updated with a cumulative performance graph.
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How To Protect Yourself From Market Corrections – Or Worse
While personally I think the overall bull market has a long way to go there is no such thing as a sure thing in investing. I consciously keep in mind the small probability that this will be the third top of the new century before we head lower. However, while I admit the probability of this happening, I do not worry about it, because if it does, I will come out more than alright.
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New calculators, put option support and HTML5 revamp!
The website just got a nice shiny HTML5 face-lift. New calculators were added. Put option support was implemented and a yield curve page is now also available.
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The best way to think about gold price is to think in terms of exchange rates with gold being just another currency. The "Purchasing Power Parity" theory tells us that if the nominal price level increases in one currency (assuming no price level change in the other currency) then the exchange must deteriorate in favor of the other currency by the same percentage. In other words, the real exchange rate should always be static.
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