This account is pending registration confirmation. Please click on the link within the confirmation email previously sent you to complete registration.
Need a new registration confirmation email? Click here
Stocks Under $10 with 50-100% upside potential - 14 days FREE!

Kostohryz: Is the S&P 500's New High Fundamentally Warranted?

NEW YORK (TheStreet) -- The S&P 500, along with most broad-market index ETFs such as the SPDR S&P 500 (SPY), SPDR Dow Jones (DIA) and ProShares Q's (QQQQ), made fresh all-time highs on the last trading day in March. Are such new highs fundamentally warranted?

On a one-month view, fundamentals do not seem supportive. On a one- to two-year view, fundamentals appear to be quite supportive. On a secular view, the outlook is more worrisome. Overall, the outlook seems supportive, when one focuses on the cyclical fundamentals that tend to drive equity returns over the course of a one- to two-year time frame.


Short-Term Fundamentals

Global growth seems to be slowing in various regions. Certainly, the recession in European nations, such as Italy and Spain, was accelerating even before the Cyprus crisis; the travails of that island nation can only be expected to cause further economic and financial troubles. Growth in Japan, Korea and Australia has been disappointing, perhaps even alarming. "Dr. Copper," an industrial metal whose price evolution is typically considered to be a predictive factor in many macro econometric models, has also been sending some cautionary signals regarding global growth prospects.

In the U.S., the short-term picture seems to have deteriorated somewhat in the past 30 days. Data on real income, consumer confidence, consumption and durable goods slipped a bit in February-March.

In terms of prospective earnings growth, recently announced profit disappointments by Oracle (ORCL) and Fedex (FDX) raise the possibility of a softer-than expected first-quarter earnings reporting period.

Thus, on a 30 day-prospective, it appears that leading and coincident fundamental indicators have not been particularly supportive of new highs.


Cyclical Fundamentals

I define cyclical fundamentals as referring to an entire economic cycle, which in recent times has generally encompassed between five to eight years. Here the fundamental outlook is generally supportive, at the current time.

First, trailing and forward 12-month PE ratios, as well as my own measure of a cyclically adjusted PE (not Shiller's PE10), look to be slightly above historical averages on a long-term secular basis. However, valuations are actually slightly below average, when we look at the historical record of typical valuations, at this particular point in an economic cycle.

1 of 4

Select the service that is right for you!

COMPARE ALL SERVICES
Action Alerts PLUS
Try it NOW

Jim Cramer and Stephanie Link actively manage a real portfolio and reveal their money management tactics while giving advanced notice before every trade.

Product Features:
  • $2.5+ million portfolio
  • Large-cap and dividend focus
  • Intraday trade alerts from Cramer
  • Weekly roundups
TheStreet Quant Ratings
Try it NOW
Only $49.95/yr

Access the tool that DOMINATES the Russell 2000 and the S&P 500.

Product Features:
  • Buy, hold, or sell recommendations for over 4,300 stocks
  • Unlimited research reports on your favorite stocks
  • A custom stock screener
  • Upgrade/downgrade alerts
Stocks Under $10
Try it NOW

David Peltier, uncovers low dollar stocks with extraordinary upside potential that are flying under Wall Street's radar.

Product Features:
  • Model portfolio
  • Stocks trading below $10
  • Intraday trade alerts
  • Weekly roundups
Dividend Stock Advisor
Try it NOW

Jim Cramer's protege, David Peltier, identifies the best of breed dividend stocks that will pay a reliable AND significant income stream.

Product Features:
  • Diversified model portfolio of dividend stocks
  • Alerts when market news affect the portfolio
  • Bi-weekly updates with exact steps to take - BUY, HOLD, SELL
Real Money Pro
Try it NOW

All of Real Money, plus 15 more of Wall Street's sharpest minds delivering actionable trading ideas, a comprehensive look at the market, and fundamental and technical analysis.

Product Features:
  • Real Money + Doug Kass Plus 15 more Wall Street Pros
  • Intraday commentary & news
  • Ultra-actionable trading ideas
Options Profits
Try it NOW

Our options trading pros provide daily market commentary and over 100 monthly option trading ideas and strategies to help you become a well-seasoned trader.

Product Features:
  • 100+ monthly options trading ideas
  • Actionable options commentary & news
  • Real-time trading community
  • Options TV
To begin commenting right away, you can log in below using your Disqus, Facebook, Twitter, OpenID or Yahoo login credentials. Alternatively, you can post a comment as a "guest" just by entering an email address. Your use of the commenting tool is subject to multiple terms of service/use and privacy policies - see here for more details.
Submit an article to us!
DOW 17,083.80 -2.83 -0.02%
S&P 500 1,987.98 +0.97 0.05%
NASDAQ 4,472.1080 -1.5890 -0.04%

Brokerage Partners

Rates from Bankrate.com

  • Mortgage
  • Credit Cards
  • Auto

Free Newsletters from TheStreet

My Subscriptions:

After the Bell

Before the Bell

Booyah! Newsletter

Midday Bell

TheStreet Top 10 Stories

Winners & Losers

Register for Newsletters
Top Rated Stocks Top Rated Funds Top Rated ETFs