S&P: NOT Ready to Call a Bottom!!
Last Friday’s price action certainly ignited calls of a ‘bottom’ in this market rout that started in earnest in Nov 2021. But as they say, ‘not so fast’!
Gina Martin Adams, Chief Equity Strategist for Bloomberg Intelligence noted in a recent tweet that “all of the major bottoms since 2009 occurred with less than 5% of the S&P 500 trading above their 50-day moving averages”.
The attached chart shows the recent low of that percentage at roughly 15% before popping last Friday to 21ish. So by that measure, we’re not quite confirmed for a bottom. (I included the data going back to the Covid-lows of March 2020 for good measure, not expecting it to got there, but to give an order-of-magnitude for ‘worst case scenario’).
Separately, FactSet recently published the data on the S&P 500 Forward 12-month P/E Ratio noting that it was at 17.6, down from November’s level of 21+, below the 5yr average of 18.6, but still above the 10yr average of 16.9. They also noted that the last time the number was below 18 was in April 2020!
Admittedly, there is a great deal of bad news already priced into the market…higher rates, higher inflation, higher wages, likelihood of demand destruction, possible Covid strains reigniting lockdowns, energy prices soaring, Russia’s war, fear of tactical nuclear weapons being used, etc. So a bounce seemed more than overdo. But ‘buyer beware’…a ‘bounce’ does not a ‘bottom’ make!
Gina Martin Adams, Chief Equity Strategist for Bloomberg Intelligence noted in a recent tweet that “all of the major bottoms since 2009 occurred with less than 5% of the S&P 500 trading above their 50-day moving averages”.
The attached chart shows the recent low of that percentage at roughly 15% before popping last Friday to 21ish. So by that measure, we’re not quite confirmed for a bottom. (I included the data going back to the Covid-lows of March 2020 for good measure, not expecting it to got there, but to give an order-of-magnitude for ‘worst case scenario’).
Separately, FactSet recently published the data on the S&P 500 Forward 12-month P/E Ratio noting that it was at 17.6, down from November’s level of 21+, below the 5yr average of 18.6, but still above the 10yr average of 16.9. They also noted that the last time the number was below 18 was in April 2020!
Admittedly, there is a great deal of bad news already priced into the market…higher rates, higher inflation, higher wages, likelihood of demand destruction, possible Covid strains reigniting lockdowns, energy prices soaring, Russia’s war, fear of tactical nuclear weapons being used, etc. So a bounce seemed more than overdo. But ‘buyer beware’…a ‘bounce’ does not a ‘bottom’ make!
Comment:
After publishing the above commentary, FactSet updated their forward 12-month PE data to show that the number is at 16.6, now below both the 5yr and 10yr averages! Compelling as fodder to argue for a bottom. But, a look at the historical data shows that for most of the time from 2012 thru 2020, the number was below the current 10yr average of 16.9 by sizable amounts, while the pop into the 22, 23 range only happened on the heels of Covid relief efforts, both monetary and fiscal, which are coming to an end!