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Strategies & Market Trends : Waiting for the big Kahuna -- Ignore unavailable to you. Want to Upgrade?

To: GROUND ZERO™ who wrote (55226)	9/22/2001 2:37:01 PM
From: Oeconomicus	Read Replies (1) \| Respond to of 94695

GZ, I think by "forward", he meant something like "stocks should see continuing trading over coming weeks with prices moving directionally within a range of highs and lows." Skeet, top down estimates are significantly lower than bottom up (the latter being a sum of estimates for individual companies and the former being an aggregate number, usually estimated by market strategists, not individual stock analysts). S&P last week had bottom up 2001 operating earnings at $45.89 and 2002 at $59.46 (July '01 to ), while corresponding top down numbers were $43.00 and $48.60. Top down is probably the more reliable number and I would think that's what Yardeni uses, though I'm not sure. Anyway, while nearly everyone agrees that earnings estimates for the remainder of this year need to come down, most economists expect that the fiscal stimulus (more so that interest rate cuts) will result in a sharper rebound next year than we would have seen without it. In other words, a narrower "U" or maybe a "V" bottom for the economy with the bottom coming between now and year end. So, even if you discount Q3-Q4 '01 numbers due to current events, a mid-$40s number (say $44, same as 1997 and 1998 and down 22% from 2000) seems achievable. That would make the current forward PE 21.9, right in Yardeni's "fair value" area. If you object to using estimates at all, use trailing numbers. The trailing PE on S&P operating earnings right now, after 4 qtrs of declining earnings, is 20.5, a bit below the last recession's PE in the earnings trough (when interest rates were higher). Bottom line, IMO, is that valuation is not the problem now. Liquidity and emotion are. JMO, Bob