Stocks Keep Going Higher, Fundamentals Not Following
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- Опубликовано: 6 июн 2024
- The stock market is reaching all-time highs and stocks are expected to go even higher as the FED is supposed to lower rates. Unfortunately, the fundamentals don't follow and therefore the risk is increasing and the returns are decreasing.
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0:00 Stocks
1:19 Fundamentals
2:53 Forecasts
5:31 Economy
7:33 Rate Cuts
8:04 Next
God 28 PE is very high. The S&P isn't only tech companies but also oil, banks and utilities ehich should bring the average PE down. With that in mind an AVERAGE of 28 sounds very expensive
While I agree with the general message of the video, I also have to say that It's tricky to evaluate the average PE of the index when you actually buy the weighted index, which currently is mostly affected by the contributions of the highest components like the MSFTs and NVDAs of the world and which are growing insanely fast (not at 1.9%) with incredible margins.
Why was my reply deleted?
thanks for sharing!
It may not look high given their current earnings are depressed by major investments and their current operating margins can expand dramatically and their earnings can sustain grow 20% a year. Its all boils down to whether their current investments on AI can be successful or not and deliver the level of growth.
@@luigigetsuyou think apple and Microsoft and Tesla are growing ridiculously fast?
Sven, you need to understand: stonks only go up! 🚀🚀🚀
:-))))) I have a hard time there!!!
To the moon? Who cares about the debt to GDP when Mr.Musk is going to colonise Mars!
Sven, I'm not sure which data are you looking at, but actuals 2020 in one of your view shows 112 in the other 140.. So, if not even actuals are matching, i'm not sure which kind of evaluations can be made for future years. The point you are trying to make is clear, but the data doesn't look so reliable..
That depends on the ending quarter you use, no worries
This video is comparing different sets of data. Not to par with Sven's usual quality videos
Yeah the data set with 120 earnings in 2020 is from a site called multipl which uses inflation adjusted earnings…..i was also scratching my head over the discrepancies as both sets of earnings are computed in terms calendar year also…
Only one thing you've missed - it is not dangerous at all for the most influential industry to hold these inflated assets - wall street makes money from the hype. And when it crashes - either they will manage to time it / match the index or if not they'll close the old funds and start new ones at the bottom and move the clients there. "Heads I win - Tails I win more".
thanks for sharing!
My pleasure!
Agree with you Sven, too much exuberance and free money right now.
Public sentiment is extremely optimistic, rate cuts haven't even happened yet but people are acting as if they already happened!
If earnings are lower and we are at all time highs. Why was the market pe higher a couple years ago?
I appreciate your insights!
Love it. Sounding the alarm at 33T, yes, now it's too much! But not yesterday, that was just enough debt.
:-)))
I come to you to learn some of the fundamentals of investing. I hope you keep on providing your insight.. it is much appreciated.
Thanks, will do!
100% agree with you. This market is way overvalued and not sustainable. I am in gold (physical and etf) and treasuries.
Love your videos 📈
Because so much of the recent gains are from AI hype, companies not involved in the hype have essentially become assets uncorrelated with the indexes.
As you say, hype
Sven, you're absolutely right as usual. Overspending, not saving, not being moderately frugal, not being responsible... is completely anticapitalist. And when societies are anticapitalist they always end up horribly bad. We do it and let politicians do it even more, and then they indotrinate us to spend even more and it all turns into a very big unpayable debt bubble. Some say we are always wrong because it never happens-bit it's just a matter of time, of when it will finally happen. Maths are absolute. And this time it could be catastrophic just by the sheer size of it... This debt bubble... This irresponsible society... These corrupt and populist politicians... WWIII? Could be even worse than that. Thank you.
Thanks, typically when everyone is happy in the market eventually they might be unhappy...
time will tell
Great video Sven Thanks ❤
Look at Buffett Indicator Valuation Model, Buffett Indicator is at 193%, one of the highest values in history. What happened when this indicator was this high? The market dropped lower in the future.
that is correct, but nothing prevents it to go to 200%, and that is what the market and people are betting on!
This Buffett guy might know what he is doing. 😂
Great video Sven! To the point! But I do care. As for the macro data presented, we may be witnessing economies and markets evolving into something that lacks historical precedent. At such a time, relentless attention to risk is more than wise, it's crucial.
it does have historical precedents, and those never worked - money printing and debt never ended well
Sir, my respect to your honesty. The market participants are in a euphoria, especially those sell side analysts.
thanks!
I've seen what is about to happen in the collectibles market. People are looking at stocks as investible 'collectibles' that will always go up (Like Batman #1). But stocks are not rare. They might be in demand, but when the demand faulters, non-dividend paying stocks that are overvalued will get crushed. Be well my friends.
This is an interesting thought but stocks are different from collectibles and other "non-working" assets. Stocks are "working" assets, ownership stakes of enterprises that produce value (or utility), which trade the produced value for money, entitling the stakeholders indirectly a right to a share of the profit.
However, you are right "stocks" are kind of similar to collectibles. There is a limited amount of value creation in the world provided by enterprises, i.e. indirectly stocks. If you believe innovation will produce enough value creation to satisfy the demand for value creation, on the aggregate, let's invert: no matter the innovation or growth in value creation, it cannot be unlimited because it's bounded by various limits of the natural world. This means the demand of ownership of the value creation (enterprices, indirectly stocks) can outpace its supply, which would lead to their value to increase, according to the laws of supply and demand. For example, in the event global wealth increases very rapidly, and the wealth is used to purchase stocks, demand may outpace the supply and stocks may become more valuable, leading to increased price level. So, if the aggragete invested wealth in stocks increases faster than the aggregate value creation of these stocks over a long period, it may cause their prices to remain elevated for a long period. I think this is a fascinating idea, however, it's just an idea.
thanks for sharing
Just did an analysis of SCHD by downloading the list of companies in it. PE right now is 16 with a dividend yield of about 3.9%. Median SP500 PE is 16, so it appears to be fairly valued. Dividend is good, seems like a good alternative to the overvalued tech-heavy SP500.
thanks for sharing
So much for the rational market hypothesis.
The ASX S&P 200 total returns are not tracking fundamentals - earnings yields are ~3.5%, as they are in the US market..
thanks for sharing!
Great video! You really 📌 the problem of today's market
Thanks for keeping us grounded. What are your thoughts on LEG stock?
Competition with Chinese manufacturers dumping at noncompetable price points is a serious risk for a company that manufactures such commodity type products.
thanks, don't know much about LEG
It’s trash!
My mining investments are up 50% since the video you made about how miners are bad. You’re right, the large cap miners are awful, but some of the small caps with great management teams are doing well. When the world realizes that the US will be insolvent by 2032, they will trade their USTs for gold and silver. Even the worst of the worst mining companies will rise in that tide. Well maybe not the worst. From 2004 to 2011 when gold did a 7x, some of the worlds largest gold miners somehow managed to reduce their earnings per share. Fantastically poor allocation of capital in a bull market. Historic level of incompetence hahaha
I think there's several reasons for the higher PE:
1) higher FCFs relative to earnings, as more tech in S&P, which doesn't need much investment in heavy machinery -> higher value of earnings, as investors get them earlier and there's less discounting and less debt and capital investment required
2) Lower interest rate projections, as Sven mentioned
3) US global leadership in many technologies and geo-stability. PEs in other markets aren't as exuberant as in the US
4) High government debt levels -> more money in the financial system -> higher valuations
Returns may be somewhat lower in the US, but may still be 6-7%/year imo because of US tech earnings and competitive landscape being better relative to other sectors/countries.
Also higher PEs may increase growth, as it makes equity capital cheaper for companies looking to expand
yes, thanks for the bull thesis! Which stands, but one has to see if the rewards are worth the risks.
The big question is what does well in inflationary environment. A lot of people think that commodities are an inflation hedge. But if people buy fewer items because they are more expensive, then doesn't the use of base materials also decrease?
that all depends on the price you pay for the inflation protection and when.
I believe the inflation hedge theory for commodities is based on the US$ pricing. Since it will take more inflated/devalued dollars to buy the same pound or ounce, the apparent price will increase. Supply and demand are another factor but possibly the more important one in a physical market not controlled by paper futures contract. So we might see the commodity price go up based on inflation and then go down based on demand destruction. Sven??
Is the average PE-ratio really a suitable metric to compare? The S&P currently has stocks like Merck & Co. with a PE of over 900. Single stocks can insanely skew the average
it is not the average, it is the earnings of the index versus the earnings, all the net profits in billions vs the market capitalization of the index
@@Value-Investing That makes a lot more sense, thank you!
Solid businesses, clean balance sheets and dividends for the next decade. Thats what I will do. Time will tell.
Question who is the beneficial of this Debt . Any reflection
yes, the users of it now / spending without increases in productivity
This video is comparing different sets of data. Not to par with Sven's usual quality videos.
Euro Stoxx 600 PE ratio is 15. There are a lot of cheap companies in Europe.
Any recommendation?
@@nataliam895 I don't like to give recommendations. On my watch list Flatex (Ticker: FTK) is the most undervalued stock. But you have to believe in the biggest European online broker growing stronger.
there is a reason for that :-)
@@nataliam895 not a recommendation but an example. PORR AG recently reported record order intake, record order backlog and record earnings. Yet the stock is trading at around 50% of its all time high. Makes no sense to me. Stock should be around 20 EUR but is at around 14 EUR. I guess people don't want to invest into Europe probably because of the Ukrainian war.
@@nataliam895 I can't because RUclips keeps deleting my comments...
Does debt matter so much if it’s the reserve currency. Everyone’s going to buy treasuries the more the interest rate goes up.
yes, if too much, no more reserve currency,
Wonder if it matters at all that all the major economies (USA, EU, China, Japan…) has very high debt levels so money/investments gets normalized to high debt levels until….
Hard to normalize to high debt :/)
The fundamentals are great
Stonks 🚀 if stocks are overvalued but the companies are not earning above any special scenario - then were did all the money come from?
you don't need much money to push stocks higher, if a stock is trading at $50, and the market capitalization is $1 trillion, if then the market decides that stock is worth $100, the market capitalization is immediately $2 trillion - but theoretically you just need $100 bucks to buy one stock
My answer is rather simple: gold, silver, BTC, VXX, cash, but some exposure to REITs and stocks because the world is not binary...
thanks for sharing
The camp nail pic is back. Lol
??
You are amazing. So sound thinking. Thank your parents such good brains. lol
:-)))
this makes me think that despite any news there is a massive amount of people still keen to buy, therefore might keep going up unfortunately
Even if we assume that SP500 earnings will reach $250 in 2024, the index is still at 21 times forward P/E, well above the historical average.
Doesn't sound like a promising long-term investment, stock picking seems smarter right now.
S&P 500 rally is being driven by 10/15 stocks so to use the avg earnings doesn't seem very accurate
Correct. The current S&P 500 forward PE is 20.9 The historic average (median) is 18.8
The current forward PE for the mega cap 8 is 28.2 - that's for the top 8 companies only, not the whole S&P 500 which is at 20.9
The sum of earnings versus market cap
@@Value-Investing That's a good estimate imo, but not entirely accurate mathematically because of compounding. Here's why:
Let's assume that earnings grow asymmetrically: 80% of the earnings grow 0%, while top 20% earnings grow 30% pa. In one year thus the market cap would then increase by 6%. However in five years the earnings for top 20% would be 1.3^5 -1 = 2.71, while for the entire 100% market cap the growth would then be fifth of that aka 0,5425 and the total value would be 1.5425x ...which is roughly 9% pa.
So 6% growth one year, 9% five years. Because of asymmetric compounding.
But let it be noted that I don't believe in wall street estimates for AI growth... I just checked my math above on Copilot AI - and it got incorrect result, I believe. I corrected it couple times and it got 2 different incorrect results on top of that. Not the first time I had to correct AI on interest rate calculations.
@@Value-Investing That's a good estimate imo, but not entirely accurate mathematically because of compounding. Here's why:
Let's assume that earnings grow asymmetrically: 80% of the earnings grow 0%, while top 20% earnings grow 30% pa. In one year thus the market cap would then increase by 6%. However in five years the earnings for top 20% would be 1.3^5 -1 = 2.71, while for the entire 100% market cap the growth would then be fifth of that aka 0,5425 and the total value would be 1.5425x ...which is roughly 9% pa.
So 6% growth one year, 9% five years. Because of asymmetric compounding.
But let it be noted that I don't believe in wall street estimates for AI growth... I just checked my math above on Copilot AI - and it got three different incorrect results. :)))
Yep, my math is correct... simplest way to calculate... 100 euros growing 30% and 400 eurros growing 0%.... 1,3^5 x 100€ = 371€ (+ 400€).... 771e / 500e = 1,54 aka 9% p.a.
Sven you forgot to explain why 25 p/e is expensive? assuming you think earnings will be around 200 and growing rapidly.
The yield is low
Compared to the averages over many years it's high. Which means you can expect a lot less return in the future if you buy now. He did explain that in the video. Yes it's possible to have a high PE and still not being expensive if the future has a lot of growth. But because here we are talking about the SP500 and averages that's not the case. A new company that is growing super fast can have a high PE and still be cheap because the future earnings will make up for it. But in a lot of companies that will not be the case.
@@PonderDukethe logic only follows if the P/E ratio of the S&P 500 is mean-reverting. There is no reason to believe that this is the case
@@steventaylor6027 Indeed and if that's the case the S&P500 it is not going to deliver the same returns anymore like it did in the past. And perhaps a sign to look elsewhere unless one is happy with an average return of 5% instead of 10%. Or become a good stock picker.
@@steventaylor6027 Yeah, except the past history...
How about a video for those that only have 401k funds with limited etfs to choose from?
Good idea
Will do!!!
The quickest way to get the market to crash is to have ARK endorse the S&P 500
haha
"The Magnificent Seven stocks grew their earnings by 37% over the last year while the remaining 493 companies in the S&P 500 saw a 2% decline. By the 4th quarter of this year, this trend is expected to reverse w/ an 18% YoY increase for the 493 vs. a 15% increase for the Mag 7."
thanks for sharing
S&p needs to drop 50% to hit intrinsic value.... wild.
:-)
If everyone in the world has agreed upon a price that is double what your “intrinsic value” is, that means your model is wrong.
Rush into tangible assets to escape the upcoming inflation wave.
depends at what price
I just wonder if the market growth reflects the real level of inflation?
This has been my assumption. There hasn't been any real growth for years. The stock market exuberance is just a reflection of inflation. After all, companies products, services, and assets are whats inflating. As long as the Fed has a MANDATE to create inflation, the stock market will go up and up over time.
@@jsedge2473 following the logic the stocks even an index fund is a safer investment compared to treasuries, where you are guaranteed to lose money to inflation.
It sounds as a paradox, but it may just be a reality where we live today.
I think inflation has to catch up a bit, or the market go down a bit - ah, time will tell...
Although scary how rich the market is, we should be modest about actually how good the companies are in that index. They have been cash flow growing machines in last 10 years
that is correct, and that is why the index is up 7x
Should I sell? or keep DCA
if you keep DCAing whatever happens next, you should do ok over time, actually you should be much better if there is a crash...
@Value-Investing thanks for the reply! Great video!
6:50 linear or exponential 🤑 🥳
:-))) I meant without recessions factored in, without shocks, in that way linear ... :)))
@@Value-Investing That's just my type of party! 🥳🎉
Good Video Sven Quality of life will be better
Yes it will
even in Europe
here in Portugal everyone (who invests) just says "VWCE and chill". I think its pretty risky. And not much safer than the SP500. What is your opinion on it, Sven?
But Sven you are forgetting that AI will boost productivity in next 5 years. My own analysis shows s&p500 eps at $500 in year 2028.
Sometimes fundamentals and stock prices are way off. Probably that is why it is being said that Mr Market is crazy. I got bit by the bear once, so I am a bit cautios now as well. I know sitting in cash could be costly but now I can’t seem to find any decent stock apart from ADM
:-)
Looking into rating agencies. The only certanty seems to be that debt only goes up (untill it doesn't) and everyone want to print more. People rating the debt should have no shortage of demand haha.
Thanks for the reality check Sven, great channel
I made a purchase of a tech company at a high price for my standards and i feel a bit nervous , all my last purchases are kind of contrarian with the market and bought cheap, now i am confident on the company but not myself buying at that price, is that a bias? What is the medicine sir
to the moon, is the motto.
as always ;)
:-)))
9:10 Say hello to my little friend hyperinflation!
:-)))
investing thinking any time there could be a crash is a dumb strategy
thanks for sharing
When the party is over you will see the emperor lying naked... -Warren Buffet
Sven, I appreciate your hard work and Superior knowledge about the economy compared to most of us. However the truth about the social security situation in the US is that they continue to BORROW from it to fund all of their other shenanigans!!! Back in the 90s vice president and then Presidential candidate Gore talked about putting Social Security in a 'lock box', out of the hands of the greedy politicians...... SNL actually made fun of him. People laughed him out of the White House😡! Now look at us, talking about insolvency in a program that has more than enough money and would continue to have it as long as we allowed positive, legal immigration and collected taxes from a slowly growing young population! Hopefully someone will again try to speak sense to our 'leaders' on the left AND right !!!
thanks for sharing, but for now nobody cares, hopefully the US will solve this somehow, but a debt crisis is difficult.
AI will close the gap! productivity will spike, people will be redundant, AI will buy AI, it will make the spending - not the humans! lol!
very good info! thx!
:-)))) I see AI drinking a martini and picking its own olive....
The next crash will make me rich, waiting for a crash. Until then I'll keep DCA'ing into the market 😄
:-)
Earning at $275 by 2025? Wall Street is drinking alright. And that's proof of systematic false advertising on their part.
yes it is, but that is how they make money
Pre dump vid ;-)
???
And such low dividends 🥶
Look how great Cisvo and intel is doing 25 years later!
:-)
You are not an idiot, Sven. Or, maybe you are, but you are not the only idiot in the room in that case, plenty of us there. 😁 A wish: video on the HK stock exchange, HK.0388.
Looked at it recently, fairly priced for a good business!
Sven: ""Nobody cares about the fundamentals anymore..........I really don't know what to say." XD Just embrace the insanity. Boom or go bust! Go big or be homeless!
Looking at the historic debt levels shown @ 6:50 the US debt level shrank to GDP after WW-II because the US was the only game in town that wasn't blown to bits.
So, all the US has to do is start WW-III, blow the rest of the world to hell, and be the only one left standing with an industrial base capable of rebuilding the rest of the world. Kinda seems like they're getting started on hostilities with Russia, Iran and China this time around. 75,000,000 dead last time around and most of them were civilian noncombatants. Hang on. It's going to be a wild ride...
Lets hope no wars
Folks this is another hidden advertisement of his platform. Ask yourself why he made this video ?
He is trying to scare you and the only solution are the answers on his platform. This is similar tactic in the Wolf of wall street movie when he was selling a pen to someone.
And now ask yourself another question, if he is a successful investor, why is he here and selling his stuff ? Shouldn't he be already rich from investing and dividends after 20 years of being in the stock market ?
thanks for sharing your attitude towards life, I am sure it works greatly for you, and thanks for stopping here and commenting!
wtf you talking about, 185 is only for 3 quarters and even you said it and you keep saying like it's the whole year of earning
it is for the last 4 quarters,
Yes stock prices generally go up over time and hit record highs most of the time. Sven wants you to be scared so you will buy a subscription to his platform 😂
Yea, except when e.g. The S&P500 from 1999 to 2012 did jack shit. You are so lost man
@@RedVSBlueIsCewl cherry picking. most people invest over their entire career. So unless you invested your entire net worth for the first time in 1999 this is a meaningless anecdote used to scare you
@@txn4yt7mc5sorry but I don't think thats true - statistically most people get into investing when "everyone is making money" because stocks only go up, right? so they invest their money when the market is already hot and sell their stocks when the market turns downwards.
Besides it's not cherrypicking when I refute your general statement. I can show you periods in every index and especially in individual stocks.
@@txn4yt7mc5most people Don’t invest
thanks for sharing!
hahaha! yes you will be out of job soon. everyone can get rich without knowing what they are buying.
Bro what's your X account
So fair value about 3200 based on 180 earnings
there is no fair value, the lower the better if you are investing :-)))