Morning MoneyBeat : What Multiples Say About a Market Top

        By Kevin Kingsbury
        Morning MoneyBeat is the Journal's pre-market primer packed with market updates, insights and must-read news links. To receive this morning newsletter via email, click here: http://on.wsj.com/MoneyBeatUSSignup
        MARKET SNAP: At 6:10 a.m. ET, S&P 500 futures down 0.30%. 10-Year Treasury yield higher at 2.32%. Nymex down $1.17 at $64.67. Gold 0.39% higher at $1195. In Europe, FTSE 100 down 0.73%, DAX down 0.41% and CAC 40 down 0.59%. In Asia, Nikkei 225 up 0.1% and Hang Seng up 0.19%.
        WATCH FOR: 12:30 p.m. EST. Federal Reserve Bank of Atlanta President Dennis Lockhart speech at Council for Quality Growth Annual Meeting.
        Watch what the dollar does in U.S. trading. It surged in Europe Monday, spurred on by Friday's strong jobs report. By 6:15 ET, the dollar was trading at a seven-and-a-half-year high against the yen, a 15-month high against the pound and more than two-year high against the euro, while emerging markets currencies also under pressure from the rising greenback.
        THE BREAKFAST BRIEFING
        The U.S. stock market has tripled from 2009's lows and more than a few view it as a wee bit expensive at current levels. Bulls, of course, have argued otherwise.
        U.S. equities have marched higher nearly uninterrupted for 3 years now, and by one measure they are at their richest level in more than nine years. The S&P 500 is trading at 16.2 times Wall Street's projected per-share earnings for the next 12 months, says FactSet, a level not seen since July 2005 and above the 15.3 level the metric had at the start of this quarter.
        Beyond the continued gains for the S&P 500, up 5% this quarter, part of the latest multiple growth is thanks to oil's price slump.
        Since Sept. 30, analysts have slashed their fourth-quarter profit forecasts 21% for S&P 500 energy companies, a group nearly exclusively made up of firms which play in the oil patch. During the past 20 quarters, analysts' quarterly profit expectations have barely budged during the quarter for the energy sector.
        Though energy companies' current-quarter earnings expectations have fallen sharply with the price of oil, their stocks are down only half as much. As such, price-to-earnings multiples for energy companies have risen. Coupled with the ongoing rise for the S&P 500 itself (Friday was the 49th session the index notched a record closing high, topping 1929's total but still well behind 1995's record 77), the broader index's P/E continues to climb.
        The last time the multiple was at or above 16.2, the S&P was around 1250. Of course, the index had another 2 years and 20% of price gains left in it before 2007's top, so current multiples don't mean a top might be close. FactSet notes that for three of the next four quarters, analysts are anticipating S&P 500 companies' EPS to top what's set to be a record of $30.09 for the recently concluded quarter.
        It makes sense that in a period of record earnings, the index should be making record highs, all else being equal. But Wall Street profit forecasts up to a year out have largely proved wildly optimistic for a while now, getting ratcheted down sharply as the quarter in question nears.
        Look at expectation changes through mid-2015. For this quarter, projected S&P 500 earnings growth is now seen been 3.4%, says FactSet, not the 8.3% anticipated on Sept. 30. Forecasts for the next two quarters have also pulled back sharply, dropping to 5.6% from 9.5% for the first quarter and to 6.8% from 10.4% for the second quarter. Much of those declines are also due to sharply cooled expectations for energy earnings.
        Also not to be overlooked is how the dollar's further advance versus many other currencies will impact S&P 500 earnings near-term. Companies in the index are among those with the most international exposure, and thus at risk for earnings pressure from foreign currencies being transferable into fewer dollars.
        Morning MoneyBeat Daily Factoid: On this day in 1940, the Chicago Bears beat the Washington Redskins 73-0 in the NFL Championship Game, the most lopsided victory in NFL history.
        - By Kevin Kingsbury
        STOCKS TO WATCH
        Vail Resorts is projected to post a loss of $2.03 a share in fiscal first quarter, according to a consensus survey by FactSet.
        H&R Block is forecast to report a loss of 42 cents a share in fiscal second quarter.
        Pep Boys is likely to report third-quarter earnings of 12 cents a share.
        MUST READS (LINKS)
        Falling Oil Prices Spur Bets on Growth: Many of the world's top policy makers are rewriting their economic forecasts for the U.S., Europe, Japan and elsewhere, betting plummeting oil prices will lead to an overall boost in the global economy.
        Dollar Surges in Europe: The U.S. dollar continues to surge, spurred by Friday's jobs report, which some economists say may have been strong enough to prompt the Fed to raise rates sooner.
        Banks Urge Clients to Take Cash Elsewhere: Banks are urging some of their largest customers in the U.S. to take their cash elsewhere or be slapped with fees, citing new regulations that make it onerous for them to hold certain deposits.
        OECD Says Eurozone Slowing: Economic growth is set to slow in the eurozone, according to leading indicators released Monday by the Organization for Economic Cooperation and Development, placing the currency area at risk of a slide back into contraction.
        Japan's GDP Shrank More Than Estimated: Japan's economy shrank more than previously estimated in the third quarter, contracting 1.9% as capital spending declined and private consumption remained weak.
        Russian Ties Complicate U.S. Blacklist: U.S. companies trying to avoid running afoul of the recent sanctions against Russia say they face a monumental challenge: Figuring out which companies are owned by those blacklisted.
        U.S. Consumer Stocks Draw Fans as Oil Sinks: Money managers are homing in on consumer-focused stocks following a slide in oil prices that stands to improve U.S. household finances.
        New Labor Worry -- Workers Staying Put: Friday's banner U.S. payroll numbers put 2014 on track to be the healthiest year for job creation since 1999. Yet American workers remain anxious about taking a new job, worrying some economists.
        Big Banks May Need a Fuller Tank: U.S. Federal Reserve governors meet Tuesday to discuss a proposal for a new capital surcharge on the biggest banks.
        Oil's Decline Is Far From Confined: So far, few outside the energy sector have been hurt by this year's oil rout. But the ripples likely have only begun to be felt.
        U.S. Sugar Soars Above World Prices: Sugar is getting dearer in the U.S. even as it is getting cheaper in most other places, putting pressure on candy manufacturers to raise prices.
        (END) Dow Jones Newswires

        December 08, 2014 06:41 ET (11:41 GMT)

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