Charts Prepared for Rich Excell

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1 Charts Prepared for Rich Excell June 26, 2 Dr. Edward Yardeni eyardeni@ Mali Quintana aquintana@ Please visit our sites at www. blog. thinking outside the box

2 Table Of Contents Table Of Contents P/Es 1 Valuation: SVM-1 (Fed Model) 2 Valuation: SVM-2 (Yardeni Model) 3 S&P Sectors Forward Earnings 4 Monetary Base M2 Velocity 6 Monetary Aggregates 7- Bulls & Bears 9 AAII Sentiment 1 Equity Funds Monthly Flows 11 S&P Revenues Leading Indicators 13 Citigroup Economic Surprise Index 14- June 26, 2 / Charts Prepared for Rich Excell www.

3 2 26 Figure 1. FORWARD P/E FOR S&P INDICES* (weekly) P/Es / S&P LargeCap (16.3) S&P 4 MidCap (16.7) S&P 6 SmallCap (17.) * Price divided by 2-week forward consensus expected operating earnings per share. Source: Thomson Reuters I/B/E/S Figure 2. FORWARD P/E RATIOS FOR S&P STOCK PRICE INDEXES* (daily) S&P LargeCap (16.2) S&P 4 MidCap (16.) S&P 6 SmallCap (17.6) / * Daily stock price index divided by 2-week forward consensus expected operating earnings per share. Source: Thomson Reuters I/B/E/S and Standard & Poor s. Page 1 / June 26, 2 / Charts Prepared for Rich Excell www.

4 Figure 3. Valuation: SVM-1 (Fed Model) STOCK VALUATION MODEL #1 (SVM-1)* (weekly, percent) Overvalued Undervalued * Ratio of S&P Index to its fair value (2-week forward consensus expected S&P operating earnings per share divided by the 1-year US Treasury bond yield). Monthly through April 1994, weekly thereafter. 6/ FORWARD P/E & BOND YIELD (SVM-1) (weekly) Ratio Of S&P Price To Expected Earnings* Bond s P/E=Reciprocal Of 1-Year US Treasury Bond Yield * 2-week forward consensus expected S&P operating earnings per share. Monthly through March 1994, weekly thereafter. 6/22 6/ MARKET S ESTIMATE OF EARNINGS (SVM-1) (weekly, dollars per share) 6/ S&P Forward Earnings Market s Estimate* Analysts Estimate** 6/ * S&P index multiplied by 1-year government bond yield. Monthly through March 1994, weekly thereafter. ** -month forward consensus expected S&P operating earnings per share. Monthly through March 1994, weekly thereafter. Source: Standard & Poor s Corporation and Thomson Reuters I/B/E/S. 2 Page 2 / June 26, 2 / Charts Prepared for Rich Excell www.

5 Valuation: SVM-2 (Yardeni Model) 1 Figure 4. STOCK VALUATION MODEL #2 (SVM-2)* (percent) 1 Overvalued - Undervalued May * Ratio of S&P index to its fair value (-month forward consensus expected S&P operating earnings per share divided by the difference between Moody s A-rated corporate bond yield less fraction [.1] of -year consensus expected earnings growth) STOCK VALUATION MODEL (SVM-2) (ratio scale) Actual S&P Fair Value S&P * -year earnings growth weight May * Fair value is -month forward consensus expected S&P operating earnings per share divided by the difference between Moody s A-rated corporate bond yield less fraction (as shown above) of -year consensus expected earnings growth ADDITIONAL VARIABLES IN SVM-2 Corporate A-rated yield* less 1-year Treasury yield.1 times long-term consensus expected earnings growth *Moody s corporate A monthly through 197, then weekly through 2. Beginning in 26 S&P corporate A. Source: Moody s Investors Service and Thomson Reuters I/B/E/S. 6/ Page 3 / June 26, 2 / Charts Prepared for Rich Excell www.

6 S&P Sectors Forward Earnings Figure. CONSUMER DISCRETIONARY 19 6/14 INDUSTRIALS 19 6/ CONSUMER STAPLES 19 6/14 INFORMATION TECHNOLOGY 19 6/ ENERGY 19 6/14 MATERIALS 19 6/ FINANCIALS 19 6/14 TELECOMMUNICATIONS SERVICES 19 6/ Includes Real Estate through September HEALTH CARE 19 6/14 UTILITIES 19 6/ * Time-weighted average (in blue) of consensus operating earnings estimates for current and next year (in red). Source: Thomson Reuters I/B/E/S. Page 4 / June 26, 2 / Charts Prepared for Rich Excell www.

7 Monetary Base Figure 6. MONETARY BASE* (ratio scale) 6/ * Adjusted for changes in reserve requirements. Source: Board of Governors of the Federal Reserve System. 14 Figure 7. MONETARY BASE* (yearly percent change) /2-2 * Adjusted for changes in reserve requirements. Source: Board of Governors of the Federal Reserve System. Page / June 26, 2 / Charts Prepared for Rich Excell www.

8 Figure. M2 VELOCITY (GDP/M2) Velocity Three-Month Treasury Bill Rate Source: Board of Governors of the Federal Reserve System. M2 Velocity Q Figure 9. M2 MONETARY AGGREGATES*: EUROZONE (yearly percent change) France (Apr=.9) Greece (Apr=6.) Ireland (Apr=.3) Portugal (Apr=.) Germany (Apr=3.7) Italy (Apr=4.4) Netherlands (Apr=-1.9) Spain (Apr=1.3) * Includes currency in circulation. Source: Bank of Greece, Duetsche Bundesbank, Banque de France, Banco de Portugal, Banca d Italia, Banco de Espana, De Nederlandsche Bank, Central Statistics Office Ireland, and Haver Analytics. Page 6 / June 26, 2 / Charts Prepared for Rich Excell www.

9 16 14 Figure 1. JAPAN: M2 PLUS CDs* (yearly percent change) Monetary Aggregates Z M2 Plus CDS (3.2) May Z = Zero Interest Rate Policy. * In yen. Note: Blue shade is Quantitative Easing Policy. Source: Bank of Japan. 4 3 Figure 11. CHINA: MONETARY AGGREGATES* (yearly percent change) M1 (6.) M2 (.3) May * In yuan. Source: China National Bureau of Statistics. Page 7 / June 26, 2 / Charts Prepared for Rich Excell www.

10 Figure. MONETARY AGGREGATES*: UNITED KINGDOM (yearly percent change) Monetary Aggregates M1 (3.) M2 (2.) M3 (2.2) Apr * Includes currency in circulation. Source: Central Statistical Office. Figure 13. M2*: CANADA (yearly percent change) M1 (.6) M2 (4.1) M3 (3.6) Apr * Includes curreny in circulation. Source: Bank of Canada/Haver Analytics. Page / June 26, 2 / Charts Prepared for Rich Excell www.

11 6 Figure 14. INVESTORS INTELLIGENCE BULLS & BEARS Bulls & Bears 6 4 Ratio Bull/Bear Ratio* Ratio Jun 2.99 Jun 3. Jun / Percentage Bulls Bears Bulls Bears Jun Jun. 17. Jun / Percentage Correction Correction Jun 29.4 Jun 26.7 Jun / Source: Investors Intelligence Page 9 / June 26, 2 / Charts Prepared for Rich Excell www.

12 1 Figure. AAII SENTIMENT INDEX FOR STOCKS AAII Sentiment 1 7 AAII Bull Ratio* 7 6/ AAII Bull/Bear Ratio / Latest Readings Bulls Bears Jun Jun Bulls Bears * AAII Bull Ratio is the percent of bulls over the percent of bulls plus percent of bears. Source: American Association of Individual Investors (AAII). 6/ Page 1 / June 26, 2 / Charts Prepared for Rich Excell www.

13 Figure 16. Equity Funds Monthly Flows Equity Mutual Funds* (-7.1) Apr Equity ETFs** (9.3) Apr * Net sales (including reinvested dividends) less redemptions plus the net results of fund switches. ** Net share issuance by equity ETFs. Source: EQUITY Investment MUTUAL Company FUNDS Institute. & ETFs 1 (monthly net inflows, billion dollars) Total Equity Funds (2.2) Apr Page 11 / June 26, 2 / Charts Prepared for Rich Excell www.

14 14 13 S&P Revenues Figure 17. S&P REVENUES PER SHARE: ACTUAL (S&P quarterly data) & FORWARD (TR weekly data) (dollars) 6/14 Q Revenues Per Share Forward* Actual (quarterly, annualized, nsa) * Time-weighted average of consensus estimates for current year and next year. Monthly through December 2, then weekly. Source: Standard & Poor s (for actual revenues) and Thomson Reuters I/B/E/S (for forward revenues) Figure. S&P OPERATING EARNINGS PER SHARE: FORWARD & ACTUAL (Thomson Reuters data) (dollars per share) 6/21 Earnings Per Share Forward* (16.6) Operating** (4Q sum) (14.1) Q * Time-weighted average of consensus operating earnings estimates for current and next year. Monthly through March 1994, then weekly. ** From S&P until Q4-1993, then from Thomson Reuters I/B/E/S. Source: Thomson Reuters I/B/E/S. Page / June 26, 2 / Charts Prepared for Rich Excell www.

15 Leading Indicators 4 3 Figure 19. S&P OPERATING EPS: THOMSON REUTERS vs. S&P MEASURES (dollars per share) Q Thomson (3.) S&P (36.) Source: Standard & Poor s Corporation and Thomson Reuters I/B/E/S Figure 2. LEADING ECONOMIC INDICATORS 6/ ECRI Weekly Leading Index (1992=1, 4-wa) May Conference Board LEI (216=1) Note: Shaded areas denote recessions according to the National Bureau of Economic Research. Source: Conference Board and Economic Cycle Research Institute (ECRI). 3 Page 13 / June 26, 2 / Charts Prepared for Rich Excell www.

16 Figure 21. CITIGROUP ECONOMIC SURPRISE INDEX (percent) Citigroup Economic Surprise Index / Based on US Dollar (3.) Note: Blue shaded areas denote first quarter of each year. Source: Citigroup Figure 22. S&P P/E & CITIGROUP ECONOMIC SURPRISE INDEX (daily) 6/ S&P Forward P/E* (ratio) Economic Surprise Index (percent) * Daily price divided by 2-week forward consensus expected operating earnings per share dated Thursdays. Source: Standard & Poor s Corporation, Thomson Reuters I/B/E/S, and Citigroup. Page 14 / June 26, 2 / Charts Prepared for Rich Excell www.

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18 Citigroup Economic Surprise Index Page / June 26, 2 / Charts Prepared for Rich Excell www.