S&P 500 Reaches 25 Times Company Earnings: Financial Spread Betting News

Posted on | January 5, 2010 |

Wall Street opened in negative territory this afternoon, as the ten-month rally left the S&P 500 trading at almost 25 times its companies’ reported operating earnings – the highest valuation since 2002.

Figures released soon after the opening bell were also disappointing. The National Association of Realtors unveiled an unexpected 16% plunge in US pending home sales for November, suggesting the recovery in the US housing market may have stalled.

One month’s data is not enough to judge whether this is really the case, however. We must consider the fact that there was a huge interest in the government’s $8000 tax credit, which was initially scheduled to expire at the end of November but recently extended, and is meant to expire sometime in mid-2010. Therefore the likelihood is there’s no longer any urgency to buy right now; first-time home buyers have more time to save and shop around.

Ironically, today’s data may end up being positive for stock markets, as it could contribute to the scaling back of expectations for an interest rate hike in the short term – the main factor that has been strengthening the dollar recently.

Separately, another report revealed that US factory orders rose by a stronger-than-expected 1.1% in November, as economists underestimated demand for business equipment. This follows a 0.6% rise in October.

When excluding transportation, orders climbed 1.9%, the biggest rise since June. In addition, bookings for capital goods, excluding aircraft and military equipment – a barometer of future business investment – increased 3.6%. This is higher than the previously reported 2.9% increase.

By 3.30pm (London time) the Dow Jones Industrial Average had bounced off earlier lows. The blue-chip index was trading 9.68 points (-0.09%) lower at 10574.28 while the broader S&P 500 was 2.17 points (+0.19%) higher at 1135.16. The Nasdaq, meanwhile, traded 2.81 points higher (+0.15%) at 1889.51.

RadioShack was among the star performers today, soaring 8.6% to $21.50 after Goldman Sachs upgraded the stock from ‘neutral’ to ‘buy’ and added it to its ‘Conviction Buy’ list.

Goldman Sachs also raised its price target on RadioShack to $25 from $21, representing a potential upside of 16% from the current price. [1]

Tenet Healthcare also rallied on the back of a Goldman recommendation. The broker added the second-biggest publicly held US hospital chain to its ‘Conviction Buy’ list as well. ‘Tenet is the only hospital company for which we see the potential for further margin expansion in 2010, starting from a lower baseline than the group,’ Goldman wrote in its latest report on the company. [2] Tenet’s shares traded 12.3% higher at $6.12.

Meanwhile, Potash Corp of Saskatchewan (USA), a fertiliser company, jumped 5.6% to $118.51 after being upgraded to ‘outperform’ by Credit Suisse. [3]

Elsewhere, Kraft Foods saw its share price advance 3.3% to $28.34 after Warren Buffett’s Berkshire Hathaway voted against a proposal related to Kraft’s offer for Cadbury.

Source: [1] Reuters News (5 January 2010), [2][3] Bloomberg News (5 January 2010)

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