Out Fox The $treet

Even with tall the downbeat economic forecasts, S&P 500 earnings expectations for the next 12 months remains around $110. At a average PE multiple of 15, the S&P 500 would be trading at 1,650. The low interest rates and inflation would normally suggest a higher PE in the 16-17 range. That might sound crazy, but that is the reality if normality returns to the stock market. The current bond markets and interest rates remind me of the real estate market around the end of 2006. Everybody thought housing prices in California and Las Vegas were extremely high yet most people kept piling on. The logic didn't make sense, but the end of momentum can be difficult to predict. Fast forward 6 years and now the bond market is doing the exact same thing. Investors are jumping into bonds even though conventional wisdom suggests the opposite to be the best move. Stocks are very cheap on historical standards and earnings remain very strong yet few people want them. Investors fear anoth...

Earnings records were a big focus in the first part of 2011. Most analysts debated whether the SP500 would report 2012 earnings 5,10, or 15% above the record numbers already expected in 2011. Slap a 15 multiple on those numbers and estimates for 2012 could easily hit 1,500 to 1,650. Fast forward to a rough summer with heightened fears of another recession as 2011 ended and the focus on the record earnings disappeared. Hardly anybody discusses earnings anymore. It was interesting to see this Investment News article where David Cote of ING forecast 7% earnings growth in 2012 to $105. Slap a 15 multiple on those estimates and the SP500 could reach 1,575. That would be right around the record high. This number is nowhere near the $110+ estimates from the Spring time period, but very noteworthy that analysts are now looking past the recession fears and forecasting a solid '12. If the market could ever return to a focus on fundamentals, this market would rocket higher. The Europea...

As the market crashes and especially the global growth stocks, earnings estimates for SP500 stocks continue to climb into record territory. Profits are now forecast to reach $104.73 in the next 12 months, according to data compiled by Bloomberg. Some analysts are even forecasting $112 for 2012. Whats amazing about these data points is that the four-week increase in earnings on May 2nd represented the biggest gain since May 2010. Oddly that was the same period where the market sold off in 2010. The inverse correlation between raising earnings and the market selling off seems backwards, but we've now seen it 2 years in a row. Last year was a buying opportunity and this year could easily follow. If the market were to hit those earnings numbers around $104 and trade at the historical PE multiple around 15, the SP500 would reach over 1,600. Today the market sunk over 1% on Greece debt fears and global growth concerns after weak PMI data out of China and Germany providing a great ent...

While reading through this Bloomberg article on the record prices for M&A deals, I uncovered the little nugget that analysts now expect 2011 earnings of S&P500 stocks to reach nearly $95. Considering before the crash those corporations were making roughly $100, the economy is expected to bounce back much more then the headlines we see every day suggest. In fact, if you look at any stock you own that wasn't crippled by the crisis, you should expect its stock price to reach back to its highs back at the peak. Heck, the momentum of 2 years where earnings grow on aggregate by 52% would probably be enough to force stocks above those highs. At Stone Fox Capital, we've remained very bullish, but this is probably beyond where we expected the economy to be and this is the average analyst not the outlier. This definitely bodes well for our 'melt up' theory. Back to the M&A premiums as that news is almost as astonishing as the earnings picture. Paying record premiums ...