Posts Tagged 'sp500'

Markets sink on election news

Well, THIS is a surprise!  Okay, not for me or for many that study markets much.  Today the DOW sank 5.05% to 9139.27, the Nasdaq sank 5.53% to 1681.64, and the broad S&P 500 sank 5.27% to 952.77.  The adage “buy on the rumor, sell on the news” seems to have held true today.  I got that from folks in all areas of the political universe.  While one liberal acquaintance said that the value investors would be coming in soon, I’m not sure I agree.  I don’t see any value.  I only see relative value as compared to overblown, speculative, and “technical trend” style valuations we’ve had over the last five years.

A traditional accountants view of value for a company when one is buying it for earnings is five times earnings before interest, debt, tax, amortization and depreciation.  Obviously there are a TON of variables so individually that’s not something I would recommend holding to, but it’s a decent rule of thumb.  We’ll get into the average earnings-based valuation of the DOW, Nasdaq, and the S&P at some other time.  Let’s just say that “bargain hunters” buying right now are either working on a model wildly different than the traditional accountant’s view or they are fresh from the Doctor with a medical marijuana script (hopefully they can get the good Canadian stuff).

In either case, I don’t see the case for value.  Taxes are going up for any public company that makes a profit.  Taxes are going up for any investor that makes a profit from either a dividend or a capital gain in company stock.  That just made all the future investment reward significantly lower.  Sure, there will be money to be made and no matter who got elected taxes were going up.  But I don’t think this is a mere “buy on the rumor, sell on the news” reaction.  I think this is the beginning of the market looking for a true bottom.


January 2019
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