As we are seeing more earnings data, the S&P 500 is somewhat expensive based on current earnings, but right in line if you think about next year earnings. Now, obviously, next year earnings are an estimate and therefore risky, but as we see most companies beating the estimates on current earnings, the better productivity coupled with any increase in revenue based on improved economic conditions will probably meant that the 2010 estimates are too low.
While we can certainly expect to see hesitancy in the rise of the S&P to levels above 1200, barring some significant unknown economic event, it is a highly probable outcome. Some areas of the economy are still weak and will remain that way for awhile, but these are known risks and as the Government actually takes action to increase jobs, as it will with an election coming up next year, we will see increased demand, increased revenue and increased profitability.
Whether the Government will be smart enough to turn the 2010 stimulated boom into a longer term self sustaining recovery with sustainable growth depends on how fast they increase usage of domestic and renewable resources, reduce the health care cost burden and reform the tax system.
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