Stocks Are Not Cheap Here

Back in March, I posted that I think you’d be better off buying Verizon, Colgate, etc. than buying 10-year bonds at 0.6%. That was fairly close to the market lows.

However, the market has rebounded the last few weeks and now seems fairly ahead of itself. Here is a graph of the forward P/E (Price to Earnings ratio). I have a few entries for 2020.

Forward P/E Ratio over time

You can see that back in March, stocks were very cheap based on earnings expectations at the time. However, stocks are up about 30% off their lows and earnings expectations have declined considerable and so now stocks are at their highest forward P/E since the tech bubble.

And I think these expectations are still way too high. Look at the expectations for the change in earnings across quarters.

Data from Factset Insight

Analysts are expecting almost a full recovery in earnings by Q4. I’ll take the under on that.

Retail Sales Collapse

This morning retail sales were announced for March. They were down a record 6.2% in one month. As you can see clearly from this graph, this was the biggest drop on record.

Retail Sales from 1992 to 2020

The largest drop in one month in the financial crisis recession was only around 4%.

Even though this is a larger drop than any month in 08-09, it will probably be closer to -20% to -30% in April. Stores were only closed about 1/3 of the month of March.

As I mentioned in my economic updates, this recession will be far deeper than any recession since the Great Depression and will take a long time to recover from.