Markets were absolutely dismal last week where we experienced none of the typical holiday upside bounce that has been commonplace. The situation in Europe continues and is holding US markets hostage to the daily drama. Today, hope springs eternal as there are rumors circulating that a gigantic loan package is on slate for Italy, but its still a rumor at this stage. Last week’s drubbing reached a point where sentiment was as dismal as it has been in years so a bounce higher is not unexpected at all.
What keeps me from throwing my hands up in disgust is the modest real growth that continues in the United States. We’re not going into recession and we’re likely to see 2% GDP growth for the coming year. Earnings estimates for 2012 continue to stabilize as well with the expected estimate of $108 holding firm. $108 implies that we’re selling at just 11x times 2012 estimates which is sharply below the 50 year historical average of 15x times earnings. Hence, our markets are very cheap and don’t reflect the slow but stable earnings.
Eventually, a rally will emerge from this gloom but as usual the time and price points are in question.
Eventually, this too will pass.