- The Big Picture - http://www.ritholtz.com/blog -

Earnings Multiple Expansion, QE & the Fed

Posted By Barry Ritholtz On October 18, 2012 @ 11:30 am In Bailouts,Federal Reserve | Comments Disabled

Source: Bloomberg [2]



Over the years, I have described secular bull and bear markets as long periods of earnings multiple expansion and compression (respectively).

What is the impact of the Fed’s QE on the P/E compression that began when the market peaked in March 2000 or October 2007?

Dave Wilson of Bloomberg points us to Gina Martin Adams of Wells Fargo & Co. for the answer. Adams notes the parallels between QE2 and QE3 in terms of Standard & Poor’s 500 Index’s price-earnings ratio. Assuming the same patterns holds, current P/E expansion might be about a month or so away from peaking.

Adams suggest that the S&P 500’s higher valuation makes an argument for buying defensive stocks  those companies least affected by economic swings. She likes food, beverages and consumer staples, along with health care.




Fed-Induced Stock P/E Gains Seen Ending Soon [2]
David Wilson
Bloomberg, 2012-10-17 

Article printed from The Big Picture: http://www.ritholtz.com/blog

URL to article: http://www.ritholtz.com/blog/2012/10/chart-of-the-day-2/

URLs in this post:

[1] Image: http://www.ritholtz.com/blog/wp-content/uploads/2012/10/chart11.png

[2] Bloomberg: http://www.bloomberg.com/news/2012-10-17/fed-induced-stock-p-e-gains-seen-ending-soon-chart-of-the-day.html

Copyright © 2008 The Big Picture. All rights reserved.