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Markets Unsteady – Again
More than US$2 Trillion has been wiped out of global stock markets values from the high reached in May. The US stock market has declined for the last 5 weeks as a result of economic news that manufacturing weakened and that unemployment rose.
What does all this mean?
Well according to Bloomberg the S&P 500 is trading at 12.2 times earnings. So what does this mean?
This means that for every dollar of profit you need to pay 12.2 times that amount to buy the business on the stock exchange based on current prices. The long term average is anywhere between 16 and 17 times for this index which means that we are acquiring the assets on historically cheap terms. That means that there is already consideration for some “bad” events in regards to the current prices. Naturally shares can always get cheaper but if you are a long term investor there is an opportunity to take a longer term position and reap the rewards.
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