Karen Langley
speaker
146 appearances
4 recordings
1 series
first heard Jul 2020
last heard Dec 2024
Karen Langley’s voice in public audio — every appearance, attributed to the second.
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Appearances
And those are areas of the stock market that normally tend to trade at pretty high multiples.
So a combination of all those factors meant that the stock market in 2020 was looking extremely expensive using this metric.
Now, it happens that companies were able to deliver really large growth
in their earnings.
And so over the course of 2021, we did see this PE multiple of the S&P 500 start to edge down, suggesting that the stock market was a little less expensive, but it still remained, you know, trading at much higher multiples than the longer term norm.
A lot of this has to do with the high inflation that most everybody has heard about and is talking about these days, which is causing the central bank, the Federal Reserve, to prepare to raise interest rates in an effort to try to control that inflation.
Now, when interest rates are going up, that makes investors less inclined to want to pay
quite as high prices for stocks and especially technology stocks that are really valued based on their earnings far off into the future.
When you have higher interest rates, that money that those companies might make in years down the road isn't worth quite as much to you as it would be when the interest rates are really low.
And then, you know, additionally, some of the sectors that are doing really well right now, like the financial sector of the stock market that has a lower P-E ratio,
That financial sector tends to do pretty well business-wise when rates are higher because banks can make more money off of loans, for example.
So one thing you'll notice if you look at different corners of the stock market and how they're doing this year is that the best performing sectors in the S&P 500 are the energy companies and then also the financial companies.
Now, those are the two groups out of the S&P 500 that started this calendar year with the lowest P ratios, so suggesting that they're the least expensive to investors.
And those are the two groups that have actually seen their prices go higher over the course of this year so far.
So the really large earnings growth that we saw last year was in part because companies' profits had been so beaten down earlier in the pandemic and they were recovering from that.
So when we're looking at percentage growth, we were really seeing larger profit growth by companies than is normal.
And for this year, what analysts are expecting is more in line of what you'd see in a normal economy with normal levels of profit growth.
I think the thing is just to be aware that the kind of really large stock market gains that we've seen in the last several years are not what always happens.
They're not necessarily the norm.
I'm not an investment professional, but the ones that I talk to suggest that investors should just try to take a pretty long-term approach to their investments and not necessarily be reacting to every bit of news they see.
Showing 101–120 of 146 · page 6 of 8
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