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720 Global Says 'valuations may very well be the most egregious observed'

August 23, 2017 12:01 PM EDT
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Mike Lebowitz of 720Global sees a "variety of economic ills" coupled with "gross mis-valuations" that investors must deal with when trying to understand if the market is over-valued. He compares earnings growth and implied market expectations for earnings growth from 1999, 2007 and July 2017.

What Lebowitz found is that the market is implying that earnings will grow at a much faster rate in the future than they have previously. He comments "EPS must grow almost 4x faster in future quarters than it has over the last ten years if CAPE is to normalize without price losses. That rate is more than double what investors required in 1999."

Lebowitz breaks down the table noting that "The data includes implied earnings growth under the assumption that the price of the S&P 500 will not change for ten years. If we assume prices rise at the historical average of 6% per year, then the EPS growth required to normalize CAPE is nearly 9%, or 80% greater than the EPS growth experienced over the last 100 years."

You can read the complete note from 720Global here.



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