don't know about 11000 by March.
But we could get a rebound of 20-25% off the lows that would take us back above 9000 by then. I only think the chances of that are about 30-40% though. The Dow stocks needed a serious correction. Its the small caps that should see the real rebound. For the first time in five years or so, the table is really set for the small caps to outperform. Especially small cap predictable growth stocks like Jabil. Their valuations are very low compared to historical levels based on PEs versus current interest rates.
Think about it. We know there is a ton of money sitting on the sidelines, and we know interest rates have dropped world-wide to the lowest levels in years. Yet at the same time we have some of the lowest PEs in years for small caps, especially companies that should see higher growth rates than the market in general. Something clearly is out of whack. Either the earnings will decline driving PEs back up toward historical norms, or growth rates for these companies will slow down significantly. In short, the market has discounted a serious recession into the prices of these small caps. But with so much room for the US to lower interest rates or ease our currently tight fiscal policies, I think we should only get a mild recession, if we get one at all. I think we have less than a 20% chance of any recession next year.
In the case of Jabil, we have a company that has excellent forward growth visibility for the next year due to the number of new contracts received. So this is an excellent investment choice for this environment. The big caps can finish their correction, and begin to build a bottom, then start slowly climbing. When the market sees this happening, the depressed small caps that have predictable growth at a rate higher than the market will be very attractive targets. The huge pool of cash on the sidelines will begin to move into these kinds of stocks. This is what usually happens coming out of a bear market.
Paul |
