It's The Economy Stupid: What Goes Up Must Come Down

Is the market overheated?  Maybe.  Will the market correct?  Yes, of course.  They always do.  But if you compare the underlying metrics of the companies in the S&P 500 today to those companies in 2007 when we set the previous record high in the market you can only come to one conclusion.  Those companies are in far, far better financial health today than they were in 2007.  And conversely, the upward move in the market today has stronger underpinnings than in 2007.  Still, I do expect a 10% correction at some point.  Heck, a 20% correction is not completely out of the question. But when?  Now that’s the trillion dollar question!

 

S&P 500 Index
Underlying Company Metrics
Field	Current	CY 2007
Price/Earnings, Dil. Cont Ops	15.21	17.35	Better
Price/Earnings, Positive	14.95	16.48	Better
Price/Cash Flow	9.19	15.7	Better
Price/Sales	1.41	1.54	Better
Price/Book Value	2.3	2.77	Better
EV/Sales	1.75	2.53	Better
EV/EBITDA	9.36	10.96	Better
Dividend Yield	2.13	2.01	Better
Free Cash Flow Yield	6.15	2.26	Better
Gross Margin	45.12	44.19	Better
Operating Margin	19.84	19.18	Better
Profit Margin	13.32	12.92	Better
Return on Equity	25.58	21.65	Better
Field	Current	CY 2007
Assets per Share
Cash & Equivalents	328.84	193.18	Better
Current Assets	453.4	353.02	Better
Total Debt	715.72	1208.27	Better
Total Liabilities	2451	2826.88	Better
Retained Earnings	275.07	198.98	Better
Book Value	670.01	530.47	Better
Tangible Book Value	319.56	235.08	Better
Total Equity	702.82	556.53	Better