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What's ahead for the stock market is always a matter of what's overhead, just like with the weather.
Right now, sunny days and a bright outlook for stocks are what we're seeing.
Due to the crazily volatile market conditions we've been suffering over the past few months, you might think that statement is nuts.
And maybe you're right…
But today, that's what the skies look like to me – and I'm going to make my case.
We're a little past the midyear 2018 mark, so let's use today's report to review.
I'll tell you about what I've seen in the market "weather" the past half-year or so.
I'll share with you my forecast for the near future.
Finally, and most importantly, I'll tell you what you can do to make sure that you're milking this sunny outlook for all it's worth…
We're Approaching All-Time Highs
Since March 2009, central bank stimulus, powered into overdrive by extraordinary and unprecedented quantitative easing programs, effectively solar-powered stocks higher.
Artificially depressed interest rates, driven to record lows in the United States and into negative territory in Europe and Japan, drove yield-seeking investors into riskier assets (that is, equities… stocks).
The Federal Reserve's articulated policy was to lift stock prices to enhance corporations' equity capital and promote a "wealth effect," whereby rising stock markets and reinvigorated retirement accounts would stimulate consumer confidence and spending.
From market lows in March 2009, the Dow Jones Industrial Average is up 290%, the S&P 500 is up 322%, and the Nasdaq Composite is up 522%.
Even with the Fed ending bond and asset purchase programs, unwinding their balance sheet, and raising rates, stock markets have enough stored power to keep going higher – courtesy of strong earnings growth and demand.
Earnings, the bottom line in equity valuation, have been rising steadily.
In the second quarter of 2018 (the last reporting period), earnings are up an average of 24.6% over the second quarter of 2017, with more than 92% of companies in the S&P 500 reporting.
That makes three quarters in a row where earnings have risen by double digits.
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On a price-earnings (P/E) basis, a multiple of how much investors are paying for earnings, the forward P/E for the S&P 500 (based on estimates for earnings looking forward 12 months) in January 2018 was 18.6.
The long-term historical average forward P/E for the S&P 500 is 17. As of the latest earnings reporting period, the S&P 500's forward P/E is 16.7.
That shows earnings are rising faster than the price of stocks.
In other words, equities aren't overvalued – even though they're approaching all-time highs again.
About the Author
Shah Gilani is the Event Trading Specialist for Money Map Press. In Zenith Trading Circle Shah reveals the worst companies in the markets - right from his coveted Bankruptcy Almanac - and how readers can trade them over and over again for huge gains.Shah is also the proud founding editor of The Money Zone, where after eight years of development and 11 years of backtesting he has found the edge over stocks, giving his members the opportunity to rake in potential double, triple, or even quadruple-digit profits weekly with just a few quick steps. He also writes our most talked-about publication, Wall Street Insights & Indictments, where he reveals how Wall Street's high-stakes game is really played.