The following is an excerpt from the commentary of Jeffrey Saut, Chief Investment Strategist and Managing Director of Equity Research at Raymond James & Associates, for Monday, March 12. To read the full commentary, click here.
The call for this week: The past two weeks have been all about milestones. The week before last saw the D-J Industrials (INDU/12922.02) close above 13000 for the first time since 2008. During that same week the NASDAQ (COMP/2988.34) traded above 3000 for the first time since the turn of the century.
Last week contained still more milestones as many of the exchange-traded products that track the homebuilding stocks traded to their highest levels since 2008, raising the question, “With auto sales perky, if the housing sales do better than expected maybe this really is a self-sustaining economic recovery!”
And, what an appropriate question to ask on the three-year anniversary of the bull market, which began on 3/9/09 and I was bullish. To be sure, it was a really lonely stance on March 2, 2009 when I said on Bloomberg TV, “The bottoming process that began on 10/10/08, when 92.6% of all stocks traded made new annual lows, is complete this week and we are ‘all in'.”
At the time I likened the March 2009 “nominal price lows” to those of December 1974 that marked the “nominal price low” of that 17-year, wide-swinging, trading range stock market. I also commented that the “valuation low” did not appear until the summer of 1982; and, that I hoped it would not take another eight years for this wide-swinging, trading range market to make its “valuation low.”
Well, since last November I have been opining that the “undercut low” of October 4, 2011 could be such a “valuation low” with the SPX (at the time) trading below 10x forward earnings estimates with a 10%+ earnings-yield. That combination, when using the yield on the 10-year T'note as your risk-free rate of return, produced an equity risk premium of more than 8%. Such valuation metrics have not been seen in decades! Whether this is a new secular bull market remains questionable, but I am hopeful.
