Barrons: Time To Mark Time.

An excerpt from Barrons last weekend.  I like the way Mr. Santoli thinks.  Highlights with a comment at the end.

Time to Mark Time

By Michael Santoli 

....With each little downside wiggle being treated as a gift rather than a warning, the five-week, 6% climb in the Standard & Poor's 500 has been at a rather gentle slope, and has defied the popular (yet still valid) calls for a rest or retrenchment. Friday's March employment data showing a moderate gain in net new jobs, arriving with the stock market closed, did little to upset the recent trend.....

.....For all the familiar talk that this crisis-and-recovery period is unique and untethered from past cycles, we're at a point where the bull market in "unprecedentedness" that began in 2008 is rolling over. Consider this take on the economic and bond-market setup prior to the jobs data: "Many investors focused just on the slowness of job growth and had ignored other economic data, including the drop in initial unemployment claims, the rise in temporary hiring and increases in indexes of the service and manufacturing sectors of the economy." This comes from the New York Times' write-up on the March employment report -- March of 2004, that is.

Indeed, 2004 remains a favored touchstone for market observers as a guide to the current period, both of them post-recession vigils for an easy Fed to become less easy, as questions loom over the forward course of a gaudy year-old market rally.

It's easy, and therefore common, to cite the near-75% gain in the S&P 500 since the March 2009 low and marvel at its magnitude.......{Yet} no market that has lost $4.4 trillion in value since October 2007, as measured by the comprehensive Wilshire 5000, can be said to be anywhere near an all-time high.This is the proper context for the 74% gain in the S&P, which has merely recouped 57% of the bear-market losses, reattaining a level first reached in 1998 and still below where the market collapsed after Lehman failed.

As Mike O'Rourke of brokerage BTIG has noted, on Monday, Sept. 29, 2008, as the first TARP vote failed in Congress, the S&P 500 fell to 1106 from a Friday close of 1213. So this leg of the rally to 1178 since hitting 1100 near Thanksgiving has merely recouped three-quarters of what was lost in a single, sickening day.

Valuation might as well be religion, for how many devotional sects exist. The Wall Street standard of looking at a forward multiple on current-year forecast S&P operating earnings of $77 produces a middling P/E of 15 -- a good deal below, incidentally, where it stood at the same point in 2004. And for those who scoff at the probability of profits gaining 25% from '09 levels to reach that $77, David Bianco of Bank of America Merrill Lynch calculates that the current members of the S&P 500 earned $85 both in 2006 and 2007.  Laszlo Birinyi of Birinyi Associates, who has been and remains unapologetically bullish with a 1325 S&P target, notes this would translate to a multiple of 17 on the 2010 consensus, which he calls "neither cheap nor extraordinary."

More conservative measures-such as the P/E on average annual earnings of the past decade and the P/E on the median S&P stock, kept by Ned Davis Research-make the market look worrisomely more expensive, which should retard multi-year returns.

Put it all in a blender and it still seems the market is ripe for some give-back or time-marking action, yet nothing that would likely cost the bulls the benefit of the doubt over the longer term. Kind of like 2004.

Link:  Time to Mark Time?

Comment:  I think the market is caught at an interesting junction right now.  It is very over bought by our work, yet on a fundamental basis you know that I think we could trade between 1,250 & 1,350 on the S&P 500 sometime in the next 9-18 months.  Part of the reason that I think the market has been moving higher is that investors sense that the $77 consensus earnings number on the S&P 500 is currently too low.  I think that consensus estimate is going to move much closer to $80 as the year progressess absent some kind of currently unforseen event.   Corporate earnings season begins next week and we're likely to start to get a better read on whether my analysis is correct or not.  So far companies have been saying good things and almost the whole world has been up against easy 12 month comps.  We'll have to see how that plays out going forward. 

*Long ETFs related to the S&P 500 in client & personal accounts.