I'm in agreement with the Bank Credit Analyst.
The bull is back!!
The Bank Credit Analyst 27 March 2003
III. PERSPECTIVES ON THE STOCK MARKET OUTLOOK
l A cyclical buying opportunity in equities is approaching. The liquidity environment is extremely favorable and investors should start to focus on the prospect of a slowly improving earnings picture, as current geopolitical
tensions ease.
l Historically, the market delivered strong gains in the year following a bear market. l Valuation excesses have been unwound. The market is not unambiguously cheap, as has typically occurred in previous bear markets, but the Fed™s
aggressive monetary easing should prevent a major washout in valuations.
l The crushing bear market has dealt a severe blow to the cult of equity. Fragile investor psychology will not stand in the way of periodic cyclical rallies, but it will be a major obstacle to a lasting bull market.
l At best, stocks are likely to trade within a broad range for several years. Achieving decent returns will depend on successful market timing and good sector as well as stock selection. The U.S. equity market is caught between powerful opposing forces, and there is considerable uncertainty about how it will all play out. On the positive
side, the liquidity environment could hardly be more favorable, the valuation excesses of the bubble years have been largely unwound, and the deep earnings recession has ended. On the negative side, the market has not become unam-
biguously cheap, as typically happens at the end of a deep bear market. Also, investors™ appetite to own stocks may
have been permanently damaged, implying that it could be difficult for a new bull market to gain traction.
Meanwhile, there is a wide range of opinion about the outlook for the economy and earnings, and about geopolitical developments. From a long-term perspective, the
U.S. equity market will, at best, be in a broad trading range for many years. This means that it will be important to catch the shorter-term swings in order to generate decent returns. One of those opportunities should exist when
current geopolitical tensions ease, and our bias is to be positive toward the market from a cyclical standpoint.
Valuation: No Longer Expensive, But Equity market valuations have improved dramatically since the market
peaked almost three years ago. Currently, the S&P 500 is trading at around 15 times forward earnings compared to a peak multiple of 24 three |
