Market thoughts
It is amazing that anyone would go long an equity market with a reported P/E multiple of 700x but that is indeed what we have on our hands. The end of the recession and the onset of a sustainable recovery, as we saw in 2002, are not the same thing. So this could still end badly but we will await confirmation signs that this is more than a very flashy bear market rally before shifting gears. As we said in our Tea session yesterday, the cost of missing out on the first leg of a bull market, between the lows in the major averages and the lows in employment, is 20% — the price to pay to sleep at night. If we are late, and we do not intend on being too late or staying excessively bearish, we will know once the most important component of the business cycle, the engine that keeps the motor turned on, otherwise known as employment, begins to turn around on a discernible basis. We shall wait for that event, then make up our minds, and if this is the real deal, which at this time seems unlikely in the context of an ongoing credit contraction, then we will at least have 80% of the bull market to participate in ... that is, if historical experience can be used as a guide.
Show me the dividend!
The dividend yield on the S&P 500 has declined nearly 100 basis points since March, to 2¾%. At one time, the yield was at a premium to the 10-year Treasury note, but no longer. Not only that, but was is depressing the dividend yield isn't just due to the market price appreciation but also owing to the fact that S&P 500 dividend payments have plunged 32% from a year ago (according to Howard Silverblatt at S&P) — the worst July since 2002. So far this year S&P 500 dividend payouts have declined $29.5 billion and on track to drop $61.5 billion for the year. So, the U.S. stock market as an overall market does not fit our 'income theme'. In terms of the sectors that provide the yield, they include telecom (5.7%), utilities (4.5%) and staples (3.1%).
Rosenberg |
