are stocks overvalued?

data registering with market observers

frothy individual stocks For instance, Zoom (ZM), a stock I owned a while ago but have sold, reported a blowout quarter after yesterday’s close ($.20 a share vs. analysts’ estimates that averaged $.09, but ranged from a loss of $.16 to a gain of $.12). Thanks to this stellar earnings performance the stock’s PE, has shrunk to 1224x trailing earnings, according to Fidelity, or 38x its anticipated growth rate. ZM has tripled since February. Nevertheless, analysts are overwhelmingly bullish.

(Why have I sold? I’m a frequent user of the service and I like it. I imagine, though, that ZM will end up as a feature of someone else’s app. This could happen through a high-priced takeover, which would mean shareholders would make money from here …or it could happen by rivals making their services better, which would be a less happy outcome. And I didn’t have a strong conviction about which way things would go.)

the trailing (that is, based on pre-pandemic results) PE on the S&P 500 is a higher than average 23x+, even though earnings reports for index companies over the next six months or more are likely to be ugly

–the continuing economic, pandemic response and now civil liberties, train wreck of the Trump administration. My sense is that the stock market, which normally pays little attention to politics, is focused on the here and now of an inept leader beginning to channel his inner George Wallace. I don’t think the potentially disastrous long-term economic consequences of his policies are fully in today’s prices, nor the chillingly real possibility that he will be reelected in November. But his epic dysfunction is impossible to ignore.

So why is the market going up every day? More tomorrow.

2 responses

  1. Some “experts” say the Bond return is negative related to forecasted inflation so they have no place to put money. I think I’d rather put my money in a money market account rather than watch it sink in the swamp around us.

  2. Thanks for your comment. As I see it, the fixed income issue is this: a year ago, a brand-new 10-year Treasury yielded 2%+. The same Treasury issued today would yield 0.7% or so. If the new note sells for 100, then the year-ago one is probably trading around 110. If the economy gets back on its feet and interest rates rise, the 2% note would probably fall back to 100 and the recently-issued one to 90. The longer the bond term, the worse the fall. If you think rates will rise, the safest place in fixed income to be is in cash.

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