Future earnings growth for the S&P 500 has resumed once again after the flat patch this summer. With the new surge in earnings growth fair value for the S&P 500 has grown as well with our calculation being 1150 on the S&P 500. In reality the recent market surge is discounting the current growth and into 2011 where its likely to accelerate. While Socially Responsible equity investors should be winners at this point and in the intermediate term I'd caution against exuberance.
Investor Sentiment is approaching frothy levels (not quite there yet) caution is advised: Data from AAII shows individual investors, especially those of a speculative bent are very bullish. The Barron's Big Money Poll shows that institutional managers are extremely bullish as well.
On the positive side of the blotter: Earnings growth is accelerating once again after the soft patch this Summer, so much for the Deflationists. And, who wants to fight the Federal Reserve at this stage with QEII, a losing battle every time.
While the AAII statistics are bearish, longer term oriented individual investors remain quite negative on the stock market. In addition, the investors on Main Street America are detached from the reality of the markets and remain heavily invested in 0% money markets, CD's and bonds. Their gloomy perspective is not just reflected in political polling data but in their substantial withdrawals from U.S. Equity mutual funds. My fear is that they'll only return to the marketplace when the S&P 500 approaches 1400, just in time to be paring back equity exposure.
The bottom line is the recent performance is warranted but don't get carried away.
Be careful out there
Brad Pappas is President of Rocky Mountain Humane Investing located near Boulder, Colorado. Visit his website at http://www.greeninvestment.com