DOW and PE and Fixed Rates. Try these numbers:
EPS PE Aaa Yld DJIA (Avg)
1970 51.0 14.8 8.0 753.2
1971 55.1 16.1 7.4 884.8
1972 67.1 14.1 7.2 949.1
1973 86.2 10.7 7.4 923.9
1974 99.0 7.7 8.6 759.4
1975 75.7 10.6 8.8 802.5
1976 96.7 10.1 8.4 974.9
1977 89.1 10.0 8.0 894.6
1978 112.1 7.3 8.7 820.2
1979 124.5 6.8 9.6 844.4
1980 121.9 7.3 11.9 891.4
1981 113.7 8.2 14.2 932.9
1982 62.0 14.3 13.8 884.4
1983 84.9 14.0 12.0 1190
1984 120.4 9.8 12.7 1178
1985 106.2 12.5 11.4 1330
1986 113.6 15.8 9.0 1797
1987 160.8 14.1 9.4 2264
1988 228.0 9.0 9.7 2062
1989 233.9 10.0 9.3 2510
1990 197.9 13.4 9.3 2670
1991 100.8 31.8 8.8 2933
1992 165.8 19.7 8.1 3282
Comments:
1. Rates have been low and PE low as late as the 1970's
2. The 1970's and into the 1980's were a low point for the long term
progression of the DJIA and the overall market. Forbes, last year,
published a chart showing the market's value from the 1700's. The
chart showed that the 1970's values were below the long term trend
line of the past 200 years; so recent years' increases may be viewed
as a catch up period, perhaps (if you believe their measurements of
the early years). On the other hand, the increase in the 1997 took
the market above the trend line. And the longer the market goes
sideways, the better I'll feel, as a new base is formed.
3. PE ratio in one year is not a particularly good indicator of
performance in the following year (I did a regression with one year
lag, for 1920 to 1996 and could get nothing valuable).
4. We've had 3 years since 1920 when the DJIA could not produce
meaningful PE's--1931, 1932 and 1933.
5. Historically, the big threat to the DJIA has been a decline in
earnings, not interest rates. (Ie., interest rate changes have a
finite impact compared to earnings declines).
Now, to relate this to AMAT: I can't directly. I will say, however,
that as things look like they might begin to pick up in 1999, by mid
1998 we should see some sharp movement in the price. We may have a
dead quarter or two, but when it picks up the move may be fast. I've
also got a sense that peoples' view on discounting future earnings is
lengthening on the largest players. Thus, we may see a pickup sooner
than in the past on this cycle, and I don't want to be out of it--an
initial move to the mid 30's say is not unreasonable, and would give
us a 15% return--not bad given the alternatives.
And a question: Which sector will pick up first, disk drives or
semi-equips? I think I'd prefer to be in semi-equips over the next
six months.
js
PS--I'm not doing any more charts. There a pain in the ass!-) |
