The 'Bernanke' Rally Runs into Headwinds
From Financial Times:
"Investors such as David Tepper, the hedge fund manager, have since argued that as the Fed was now backing the market there was limited downside buying stocks thanks to the so-called ‘Bernanke Put’.
Easy money and recent tax cuts have certainly boosted stocks, and excluding financials, the US market is back near its highs seen in 2007, with midsized companies – the S&P 400 index – hitting a record peak.
But, the big question for investors is whether the economy can accelerate further and achieve escape velocity and thus vindicate lofty earnings expectations for 2011 and 2012. For many, the missing link for the economy amid signs of stronger earnings is the lack of robust job creation.
“We will see modest not robust growth,” says Jack Ablin, chief investment officer at Harris Private Bank.
He says the current price to sales ratio of 1.3 times for companies in the S&P 500 reflects fair value and he expects the market to rise 7.5 per cent this year.
However, Albert Edwards, global strategist at Société Générale, says two measures of US equity market valuation, Tobin’s Q – the ratio between the market value and replacement value of the same physical asset – and the Shiller p/e ratio – based on average inflation adjusted earnings for the past 10 years – are still 50 per cent above their long-term average.
In the near term, there are plenty of potential headwinds..."