Announcer:
4 Your Money is brought to you by NelsonCorp Wealth Management.
Brandy Auterson-Hurst:
It’s now time for 4 Your Money. We’re joined by David Nelson, CEO of NelsonCorp Wealth Management. Welcome back, David.
David Nelson:
Thank you. Appreciate it.
Brandy Auterson-Hurst:
So the stock market is near all time highs, but valuations have actually been coming down. How can stocks be going up and getting cheaper at the same time?
David Nelson:
It’s been a while, isn’t it? It is true though. There’s an old saying, I guess, on Wall Street that it takes a lot of earnings to offset valuations. And the chart I brought along today is a great example of this. It looks a little bit like the Milky Way Galaxy with each blue dot. It’s representing a different six month period going back to 1990. And typically when the market is rising, we find ourselves in the upper right quadrant where stocks basically need some help as far as from the standpoint of not just earnings, but also the valuations. And so the area we’re interested in today is the upper left-hand corner where stock prices are rising even as valuations are dropping. So again, a fancy way of saying that the earnings are just crushing it right now. These big corporations are making a boatload of money. And even though all of this has come together, basically the S&P is up 11.5% the last six months, but the actual P/E, price to earnings ratio has actually fallen by 8%. It’s a very unusual period that we find ourself in.
Brandy Auterson-Hurst:
Okay. So what does this tell you about how investors are viewing the market right now?
David Nelson:
Well, I think the good news is that the earnings basically have delivered, but the valuations are still elevated. So we need earnings to keep carrying the big heavy load in order for stock prices to stay in the neighborhood that we are today.
Brandy Auterson-Hurst:
All right, David, as always, thanks for joining us. If you missed any of our discussion, we’ll make it available for you on ourquadcities.com.
Past performance is no guarantee of future results. Investing involves risk. Depending on the types of investments, there may be varying degrees of risk. Investors should be prepared to bear loss, including total loss of principal.
Indices mentioned are unmanaged and cannot be invested into directly.
This video includes a paid appearance.