MARKETS SPECTATOR: Basement bargains

US markets have been hit hard by concerns over the fiscal cliff but strategists are much more optimistic on what 2013 will bring.

Following the re-election of President Obama, US stocks have pulled back quite substantially as fears over the looming fiscal cliff take hold.

However, the combination of declining prices and rising profits has delivered some very attractive valuations for the S&P 500 index. In fact, the S&P 500’s price/earnings ratio is now below the average of any bull market since the 1980s, when Ronald Reagan occupied the White House.

The pullback that started with a weaker-than-expected third quarter earnings season has meant expectations are now at rock bottom as few people have confidence in a deal being done between Congress and President Obama. However, when expectations are low the market is already pricing in a lot of the negativity.

Hence it’s not uncommon at all to see strong moves to the upside as market participants suddenly realise that it’s not as bad as initially feared.

Despite the recent falls, strategists are very optimistic for 2013, with the average forecasts predicting a rally of 17 per cent to an S&P 500 record of 1585.

In other encouraging news, the recent behaviour of corporate insiders suggests we are nearing a low point for stocks. At the end of last week, the sell-to-buy ratio was 1.58 to 1, which when compared to the average of 3.4 to 1, is less than half.

Interestingly, at the recent bull market high the ratio stood at 6.86 to 1, meaning significantly more insiders were selling stock than buying. Now, the current reading tells us that insiders are significantly more optimistic about their companies’ shares than they were only a few months ago.

Since the beginning of the bull market in March 2009, there have only been three scenarios where the ratio has been lower than it is currently. And all three came within a few weeks of a significant trough in markets.



{{ twilioFailed ? 'SMS Code Failed to Send…' : 'An SMS verification code has been sent ...' }}

Hi {{ user.FirstName }}

Looks like you have already taken a free trial

Please enter your payment details

We have sent you a code via SMS to {{user.DayPhone}}

please enter this code below to complete your SMS verification

We cannot send you a code via SMS to {{user.DayPhone}}

If you didn't receive SMS code please

SMS code cannot be sent due to: {{ twilioStatus }}

Please select one of the options below:

Looks you are already a member. Please enter your password to proceed

Please untick this box when using a public or shared device

Verify your mobile number to proceed...

Please check your mobile number below and press the Send Verification Code button. This will be used to complete your verification in the next step.

Please sign up for full access


Updating information

Please wait ...


{{ productPrice }} / day
( GST included )
Price $0
GST $0
Discount -{{productDiscount}}
TOTAL {{productPrice}}
  • Mastercard
  • Visa

Please click on the ACTIVATE button to finalise your membership


The email address you entered is registered with InvestSMART.

Please login or select "Don't know password"

Please untick this box when using a public or shared device

Register as a new member

(using a different email)

Related Articles