Breaking News
0
Ad-Free Version. Upgrade your Investing.com experience. Save up to 40% More details

High Noise-To-Signal Ratio In Stock Market Masks Clearly Bullish Trend

By Ed YardeniStock MarketsMay 10, 2018 12:43AM ET
www.investing.com/analysis/high-noisetosignal-ratio-in-stock-market-200314863
High Noise-To-Signal Ratio In Stock Market Masks Clearly Bullish Trend
By Ed Yardeni   |  May 10, 2018 12:43AM ET
Saved. See Saved Items.
This article has already been saved in your Saved Items
 

Forward P/E Ratio For S&P 500 Index 2008-2018
Forward P/E Ratio For S&P 500 Index 2008-2018

The 10-year US Treasury bond yield edged up above 3.00% yesterday. This widely feared level didn’t faze the S&P 500, which rose 1.0% on Wednesday to 2697.79. Rising oil prices, in response to Trump’s no-deal with Iran, helped to lift the S&P 500 Energy sector. But the Technology and Financial sectors also had a good day yesterday.

While the 10-year yield suggests that credit conditions are tightening, the yield spread between US high-yield corporate bonds and the 10-year Treasury bond continues to fluctuate in a tight range at a level that matches previous cyclical lows. All of the volatility in the S&P 500, and the downside pressure on this index, so far this year have been attributable to the forward P/E of the index, which has dropped from a high of 18.6 on January 23 to a low of 15.9 on May 3.

The forward P/E has been very noisy so far this year on fears of higher inflation, tighter Fed policy, and trade protectionism. It has masked the underlying bullish trend of the S&P 500 forward earnings. Thanks to Trump’s tax cuts at the end of last year, this weekly measure of industry analysts’ consensus estimates for earnings over the coming 52 weeks has been soaring since the start of the year.

My Boom-Bust Barometer (BBB), which is the ratio of the CRB raw industrials spot price index to initial unemployment claims, continues to be highly correlated with S&P 500 forward earnings. The BBB rose to a record high at the end of April. The BBB is also highly correlated with the S&P 500 stock price index, but less so than with forward earnings. That’s because there is more noise than signal in the S&P 500 than in forward earnings as a result of the short-term volatility of the P/E.

I have managed to tune out most of the short-term noise and focus on the underlying signal coming from earnings since the beginning of the current bull market. I hope I will continue to do so. In my opinion, the signal remains clearly bullish for now despite the noise.

S&P 500 Forward Earnings and Boom-Bust Barometer 2000-2018
S&P 500 Forward Earnings and Boom-Bust Barometer 2000-2018

High Noise-To-Signal Ratio In Stock Market Masks Clearly Bullish Trend
 

Related Articles

JFD Team
Hang Seng Heading for a Lower Low? By JFD Team - Sep 24, 2021

Hong Kong’s Hang Seng traded lower yesterday after meeting resistance at 24805 levels. Overall, the index remains below the tentative downside resistance line drawn from the high...

High Noise-To-Signal Ratio In Stock Market Masks Clearly Bullish Trend

Add a Comment

Comment Guidelines

We encourage you to use comments to engage with other users, share your perspective and ask questions of authors and each other. However, in order to maintain the high level of discourse we’ve all come to value and expect, please keep the following criteria in mind:  

  •            Enrich the conversation, don’t trash it.

  •           Stay focused and on track. Only post material that’s relevant to the topic being discussed. 

  •           Be respectful. Even negative opinions can be framed positively and diplomatically. Avoid profanity, slander or personal attacks directed at an author or another user. Racism, sexism and other forms of discrimination will not be tolerated.

  • Use standard writing style. Include punctuation and upper and lower cases. Comments that are written in all caps and contain excessive use of symbols will be removed.
  • NOTE: Spam and/or promotional messages and comments containing links will be removed. Phone numbers, email addresses, links to personal or business websites, Skype/Telegram/WhatsApp etc. addresses (including links to groups) will also be removed; self-promotional material or business-related solicitations or PR (ie, contact me for signals/advice etc.), and/or any other comment that contains personal contact specifcs or advertising will be removed as well. In addition, any of the above-mentioned violations may result in suspension of your account.
  • Doxxing. We do not allow any sharing of private or personal contact or other information about any individual or organization. This will result in immediate suspension of the commentor and his or her account.
  • Don’t monopolize the conversation. We appreciate passion and conviction, but we also strongly believe in giving everyone a chance to air their point of view. Therefore, in addition to civil interaction, we expect commenters to offer their opinions succinctly and thoughtfully, but not so repeatedly that others are annoyed or offended. If we receive complaints about individuals who take over a thread or forum, we reserve the right to ban them from the site, without recourse.
  • Only English comments will be allowed.

Perpetrators of spam or abuse will be deleted from the site and prohibited from future registration at Investing.com’s discretion.

Write your thoughts here
 
Are you sure you want to delete this chart?
 
Post
Post also to:
 
Replace the attached chart with a new chart ?
1000
Your ability to comment is currently suspended due to negative user reports. Your status will be reviewed by our moderators.
Please wait a minute before you try to comment again.
Thanks for your comment. Please note that all comments are pending until approved by our moderators. It may therefore take some time before it appears on our website.
 
Are you sure you want to delete this chart?
 
Post
 
Replace the attached chart with a new chart ?
1000
Your ability to comment is currently suspended due to negative user reports. Your status will be reviewed by our moderators.
Please wait a minute before you try to comment again.
Add Chart to Comment
Confirm Block

Are you sure you want to block %USER_NAME%?

By doing so, you and %USER_NAME% will not be able to see any of each other's Investing.com's posts.

%USER_NAME% was successfully added to your Block List

Since you’ve just unblocked this person, you must wait 48 hours before renewing the block.

Report this comment

I feel that this comment is:

Comment flagged

Thank You!

Your report has been sent to our moderators for review
Disclaimer: Fusion Media would like to remind you that the data contained in this website is not necessarily real-time nor accurate. All CFDs (stocks, indexes, futures) and Forex prices are not provided by exchanges but rather by market makers, and so prices may not be accurate and may differ from the actual market price, meaning prices are indicative and not appropriate for trading purposes. Therefore Fusion Media doesn`t bear any responsibility for any trading losses you might incur as a result of using this data.

Fusion Media or anyone involved with Fusion Media will not accept any liability for loss or damage as a result of reliance on the information including data, quotes, charts and buy/sell signals contained within this website. Please be fully informed regarding the risks and costs associated with trading the financial markets, it is one of the riskiest investment forms possible.
Continue with Google
or
Sign up with Email