🚨What is next for financial markets? More Pain?🚨

Global markets are consolidating after two week of gains. Energy stocks have outperformed as they track the oil price higher, in contrast to stocks in the financials and consumer staples sectors which are slightly lower. The other remaining sectors posted small gains.

These are some of the issues and developments we are watching:

1⃣ The S&P 500 P/E ratio looks attractive when compared to its historical range — but that may change if earnings estimates fall.

2⃣ Crude oil prices have continued to rise despite OPEC’s decision to increase output as demand remains strong while supply problems persist.

3⃣ The World Bank has warned of potential stagflation as inflation remains high while several countries are likely to slip into a recession.

With the index at around 4140, and the EPS estimate at $229, the forward price earnings (P/E) ratio — calculated as the price level of the S&P 500 divided by the EPS estimate — is approximately 18x (having reached a low of 16.6x in May).

However, I won’t be shocked if P/E ratio drops around 10X in the next 18 months!!

🚨The Insight: 🚨

The P/E ratio on the S&P 500 (and on most stocks) has fallen because stock prices have fallen. It now looks attractive relative to its range over the last 30 years because it’s based on past earnings, but it may not be as ‘cheap’ as it seems, if earnings for the third and fourth quarter…