Discussing Some Positive Indicators For the Markets Despite Low Consumer Sentiment
July 12, 2022
Welcome to Wealth Enhancement & Preservation’s Market Minute, where we get to update you on everything that happened in the financial markets this week. My name is Darrin Cohen, and I am the CEO of Wealth E&P.
There was a solid week for the markets last week, with all three major indices up significantly. The DOW was up almost 1% and the NASDAQ was up about 4.5%. If you watch the news or talk to your neighbors, friends, or coworkers, you’ll hear a lot of doom and gloom about recessions and downturns. I actually want to give you some positive perspective on the financial markets right now.
First, let’s take a look at S&P valuations. What you’ll see above is that after the bull run that we had the past nine years or so that brought valuations to almost all-time highs, with the recent decline, we have seen price/earnings (P/E) ratios drop below to the 25-year-average. This means that stocks are now slightly undervalued. What does this mean for stock prices moving forward?
You can see on the scatterplot above that historically, when P/E ratios are within this 15-16% range, we would expect the S&P 500 to have about a 10-15% return on average the following 12 months.
To go with that, let’s look at consumer sentiment in the above chart. When consumer sentiment is low, traditionally, the market does quite well and goes up 25% over the following 12 months. Right now, going back 50 years, we’re at the lowest historical point of consumer sentiment down at 50%.
So, if we put all of these pieces together, there is a pretty fair chance that the market will do quite well over the next year. However, we will surely experience volatility and discomfort along the way. Let us manage that, watch that, and carry that load for you at Wealth E&P. If you have any questions about this topic, if you want a risk profile, or if you would like a retirement projection, please feel free to reach out, visit www.wealthep.com, or give us a call at (678)-739-0175. Otherwise, stay tuned for our Market Minute next week!
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