2/7/13: S&P 500 Forward Look
With 2/3 of the S&P 500 having announced Q4 results, 69.1% have reported above-consensus expectations with projected earnings growth of 3.8%. Looking ahead, the market consensus is for earnings growth of +2.2% in Q1, +6.6% in Q2 and +10.0% in Q3. The chart shows that, relative to forward price/earnings, the market is still trading at a discount to the historical average of 15.5. Although the S&P still exhibits strength in our momentum models, it remains in overbought territory in our stochastic studies. This lends credence to a near-term pullback after the strong performance in the first 5 weeks of the year. Markets are extremely overbought. We remain cautious while we wait for a pullback. We are starting to sell into this rally (Feb 19th) to raise cash to 20 percent. We will then re-allocate back to a fully invested position and re-balance to a solid Growth Strategy later this quarter.
