Not Too Hot, Not Too Cold

Last year was indeed a fantastic year to be a stock investor.  The move was extremely persistent, and continued with very few pauses from the low in November 2012.  At the same time, as you look at the chart below of earnings projections, you see that corporate earnings are walking the "typical" trendline that has been intact since 1980  - not too hot and not too cold.

Today, as the new year begins, it is touching the top red line, meaning slightly overbought.  I also see in the chart below that the P/E ratio (based on expected earnings) has now moved to 15.3.  I expect to see this move up close to 17 (in the next 12-18 months - maybe this year), but so far, this upward readjustment has been fairly fast, so is it time for a little digestion, while earnings pick up? 

Although we're still bullish for the next few years, I suspect that 2013 used up some of our immediate potential, especially as we start the year with many of our indicators measuring an "overdone" emotional burst.

Don Hays

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