Well, Citigroup just came out and indicated that 21 billion dollars in new long positions have been added S P 500. And this is a lot of really one-sided betting, and it's leaving a lot of people wondering. Is the stock market stupidly euphoric? Again, Are we yet at another one of those points in the market where the market is just detached from reality? Who remembers the days of covet, where the economy was basically at a standstill and collapsing, And yet the stock market was just up, up, up and away? Well, Bank of America has a pretty fascinating piece on the stock market and what the forecast for the stock market could be. And even though to some extent this forecast and this piece that we looked through might look, uh, you know, to some as relatively one-sided, it's worth noting they're really only projecting that the S P 500 will rise another 2.3 percent this year at the end of the year.

And who knows? That could mean there could be a dip between now and then. But what I really want you to pay attention to is what they're specifically referring to as to why the market could do something unique here. So let's take a look at the piece together. This is the piece from Bank of America Bank of America's new end year Target 4300.

Okay, 4300 again represents about a 2.3 percent increase from where we sit today. So it's actually not that big of a deal. That means you know with the S P 500 up 9.9 you've already had most of your gains essentially for the years. What Bank of America is saying here? All they do.

They do indicate that the stock market could actually fall to 3 900 or rise all the way up to 4 600 in a Range. So now what I'd like to do is, uh, look at some of this, the the views they have here, especially on multiples and valuations and otherwise. So they argue here that the era of easy money is behind us and that today Corporate America is focused on efficiency automation AI productivity which definitely reminds me about this program on how to make more money and get sh19 done faster featuring AI which remember we're releasing that on June 1st and then there'll be a massive price increase for for those programs on building your wealth. But anyway, take a look at this.

They start talking about multiples and uh, how multiples for the S P 500 or or high. but uh, multiples have been even higher during prior crises and I thought this was fascinating this comparison because right now the S P 500 is sitting at about a 21 times multiple. But one of the reasons the multiple is high is because earnings are lower I Want you just visualize that for a moment because it's easy to get lost in that, especially if you're half listening. So let's simplify that.

Okay, let's say you have a stock that trades for one hundred dollars and you had five dollars of earnings per share. Uh, you know last year? let's say trailing 12 months. Well, that puts you at a 20 times multiple. But let's say last year your earnings were depressed and you actually expect your earnings to be seven and a half dollars today.

Well, then you're forward-looking PE basically is a hundred divided by 7.5 is actually 13.3 So one of the problems in a recessionary time is multiples are a dangerous tool to use during the period of low earnings. specifically because the earnings numbers are lower. so you have to keep that in mind. So look at this when we compare to Prior lows in the stock market.

What did we end up getting? Well, look at this. In Covid: we were at 23 times EPS at the low and during the great financial crisis, we were at 28x. Which means we actually weren't uh, as uh, as potential. We're not actually as highly valued as we were then, which I think is quite fascinating here.

They make the argument that there's plenty of bad news and I love that they said in the title talk to the person next to you to see the bad news And it doesn't surprise me because people themselves seem to be very bearish right now. Uh, you know, like when I walk around the neighborhood people like Kevin saw I saw your videos in some other videos should I buy gold and silver and the more I hear that the more I'm like well that's how regular people feel right now I Want to be Polish stocks? You want to be a contrarian. and so far, that's paid off this year. But anyway.

Uh, I Like this: Listen, this current valuations are not low, but rarely are low during profit recessions. So think about that for a moment. Bank of America is making this argument here that of course valuations are not low like nobody's here trying to argue that oh, everything's like way way cheap right now. But they make it clear that during quote profit recessions.

In other words, when earnings go down, valuations are rarely low. and that's kind of what we saw with this math we did on uh, the earnings per share numbers here. When EPS is down, how could valuations ever look low? They can't. Just by the nature of the calculation, it totally makes sense on cyclically adjusted earnings Valuations argue for Price returns of five percent per year for the S P 500 over the next decade better than the average negative returns uh, suggested by valuation signals at the beginning of 2022.

Now I actually wrote next to this WOW because I think it's very interesting that Bank of America's Uh evaluation metrics, we're looking forward at negative returns for the S P 500 compared to today's valuation metrics which are actually looking at positive S P 500 returns Again, this reiterates this opportunity cost of being in treasuries or cash and uh, you know there's this sentence here. They say as equities grow, less extended bonds look riskier. That's because of opportunity cost. Uh, you know there's a limit to how much you're going to gain here.

Uh, so Okay, good to know. So what? What are some of the charts they give here? Because they give a lot of of charts here and some of them are actually quite interesting. So let's see what are some of the the favorites we want to look at? They they have quite a few here. Oh yeah, this was is a good one right here.

I Like this one. so Exhibit Six inflation drives productivity Capital Expenditures Now, there's only about a 44 correlation for this. But what they're saying here is that as there's wage inflation, you actually end up getting more productivity out of businesses. So in a weird way, inflation forces forces some, uh, a tightening of the ship of businesses so to speak.

Very interesting. So I think that's great. Especially look at this mention of AI during earnings calls. You know, obviously it's at a peak now in 2023.

We should look at that chart month to month. It'll probably be even more off the chart. But anyway, look at this new S P 500 Target Increased from four thousand to forty three hundred correcting or anchoring bias. We raise our s P 2023 year-end Target to 4 300 based on our updated Target models and blah blah blah blah In our forecast, we incorporate five signals.

Now they're going to go through these signals. so we'll go through some of these signals together so we'll jump ahead. Uh first. Uh, here's some of their models.

blah blah blah. Okay, removing some of the negatives. Fine, Where do we want to look at here? Exiting The best ERA For earnings ever. This is more like the last decade.

easy earnings growth from cheap financing BuyBacks Globalization and cost cutting may be behind us, but efficiency gains could improve the quality of earnings and offset margin risk from reshoring. So reshoring is bringing workers back to the United States I Really think we're actually going through a phase of what I call re-globalization It's something I've been talking about for about a year. It's just that flip on de-globalization where everybody's worried about. Oh, that's it.

You know if everybody manufactures in America again everything's gonna be more expensive. That's true, but not everybody's just going to manufacture in America Again, you'll You'll see this transition to creating new Supply chains in different areas. but it is fascinating this this argument here. that but efficiency gains should improve the quality of earnings.

in other words, companies again focusing on that productivity. So uh, here they talk about Globalization explaining the a majority of companies basically becoming more profitable since 1995. uh, and that usually people complain today about basically a low risk premium. That's to say that hey, I'm not getting paid that much more to sit in stocks than I could get on Treasury yields.

Maybe maybe on paper math because if you're expecting the S P to return, say six percent and treasuries are at five percent, why would you? You know, why would you bother with stocks? Well, that's because potentially the stock market return could be 20 or 15 instead of uh, five percent as as the math forecast. So fascinating here. this higher real rates, lower earnings risk premiums. So that's a pretty typical thing that we would see.

But another thing that was fascinating was this chart. Right here, there's sell side indicator. Now, sell side. Don't get confused by that.

That doesn't mean like they're the short sellers or whatever. Sell side is basically just your your research side of Institutions. So just think institutions, uh, and think research side. So providing information is your sell side and their sell side indicator is, uh, trying to essentially be contrarian to what analysts think.

So if every analyst is extremely bullish then that tends to actually be bearish for stocks. And so extreme bullishness is characterized by this red line on screen right here. It's your upper bound that's extreme the extreme bullishness level. Then you have extreme bearishness, which is characterized by analysts being really negative about forward earnings and expectations.

which is why we're beating expectations so well. And uh, their average is set by this green line right here at the bottom and you can see the Blue Line shows where we sit right now. The Blue Line indicates we are really close to the extreme bearishness level, and this sell side indicator tool actually implies a return of 16 of the stock market over the next 12 months. Okay, now that's a positive, but a negative is we are going through quantitative tightening and we're not entirely clear how much of that quantitative tightening is really going to affect the market.

Some are arguing that tech stocks did well because of the money printing basically temporarily during the banking crisis uh of March but then again, the stock market returned. It seems like most of its returns before the banking crisis. you know, in in, uh, the first five weeks of the year, and then more recently here as as the balance sheet has started reducing again. Uh, so I'm not convinced on that one long-term valuation model.

Their 10-year forecast projects S P 500 gains of five percent per year Uh, actually 5.4 percent annualized returns over the next decade? Add a 21 forward. Okay, what is this Note here? They left a note here: I I Didn't read this note. We extended our long-term valuation model back to 1950 to determine whether evaluation predicted returns during different macro environments. Uh, you know, had any support or whatever.

our measure of normalized Eps is based on long run linear regression. Fine, Okay, this is more of just uh. well. let's see here.

Valuation was a strong predictor of 10-year forward returns in most decades. However, Rising rates and amid inflation and raid shocks in the late 60s and early 80s. Uh oh wait. I'm sorry, including Rising rates and amid inflation rate shocks.

So in other words, valuation was a strong predictor of 10-year forward returns almost always with the exception of the mid to late 80s in the late 90s. I don't know how useful that is, Then they're cutting things out here. So here they give you a little bit of a of a chart view of the 10-year yield in CPI Uh, here is that valuations measure where usually? Ah, this is interesting. Yeah, look at this.

You could see this blue line here. Forecasted 10-year returns pretty well lines with the actual returns. Uh, with the exception of 86 to about 95. you had this weird Gap right here.

and then you had this almost perfect merger again. Hmm. And then of course there's this 10-year lag in in. uh and that's why this.

This line ends right here. But anyway. Uh, Rising Rate Environment Fine. let's see.

Finally ready my time? Go for the Gusto Equal weighted S P 500. So what do we got here? We're relatively neutral on the cap market cap weighted S P 500 given its high exposure to long duration growth stocks, so there's still a little bit of a bear on probably your big names like the Apple the Microsoft the Amazon Facebook I would imagine to some except Tesla uh. concentration risk. Seven stocks drove the entire gain of the S P 500 year today on top of five Stacks uh Stocks? Uh, let's see, representing 22 percent of the S P 500.

Yeah, the ones I just mentioned Apple's market caps surpassed the Russell 2000 in total. Wow, it's pretty remarkable. Uh, extreme concentration remains or risk remains in the market? Well, yeah, here's your again your Microsoft Apple Amazon Facebook uh and your top five companies at 22 right now. So really dragging that S P 500 up.

So it seems like they're big fans here of diversifying. Uh, but they argue for a bigger upside to consensus price targets for the equal weighted index pointing to the equal weighted index leading the cap weight index. Okay, this is this is no relatively nominal difference, but they're really trying to say forget this fear about a recession. Uh, instead focus more on diversifying and not just concentrating on those top five names in the S P 500.

Another reason we are more positive on risk versus safety is the fact that the U.S regime indicator is waffling between downturn and an upturn. Okay, well, and when you move from downturn to upturn, you should see some bullishness in the market. Okay, interesting. So this is a B of a piece and it sort of aligns with Citibank Making news this morning talking about uh 15 or sorry 21 billion dollars flowing into the market.

There is a lot of enthusiasm for being a contrarian and looking at what the analysts are saying and and realizing okay, well if analysts are mostly bearish and calling for this earnings recession, maybe it just won't be that bad. Probably my favorite piece from this is Uh is right here. this transition from where we sit as relatively close to extreme bearishness and uh, how that's that's a pretty good leading indicator as well as the lesson on valuations. I Think the lesson on valuations is is so important because so many people, especially if you just look on Twitter just talk about oh well.

the P E ratio. Okay, well what earnings are you using? Are you using 2022 earnings from the whole or using end of the year 2023. it's it's quite fascinating when you look at the difference of those numbers. so uh, I I encourage considering that in your analysis.

This is why personally I give you sort of my hint what I like doing is I like looking at a PEG ratio and understanding. Okay, well what is something uh, trading at relative to its growth that we're projecting and to get through some of the craziness of this earnings recession I Like to get out of 2022 and what I'm looking for is what are what are we looking at for the end of the year? So for example end phase is looking at about a five dollar and 52 Cent EPS by the end of the year. Uh, and end phase right now. Let's say it's trading for 165.

that's what I remember trading for yesterday? it might be a little bit higher, so call it 165 divided by uh, 552. that puts you at about a 29.9 Call it 30 times a P E ratio? Well, their growth over the next until 2027. So that'll be five years. You're looking at uh, an average estimate here of growth of uh, that's probably about 18.

but let me do the math really quick. 32 8 plus and I go with growth after the end of the year. So that would be 24, 25, 26, 27 divided by five. Uh, it's 17.5 Okay, I was pretty close.

So 30 divided by 17.5 That's how much I'm paying for growth. You're paying a PEG ratio of about 1.7 right now, which I actually think that's generally where I'd like to be with my growth stocks is around 1.6 1.7 with the peg ratios just to do another one. and this one's just a little wild right now. But it'd be fun to look at is look at Nvidia and and all of these numbers could obviously change if the company's going to grow more than the market is expecting.

But Nvidia's blow up lately has really kind of messed with these numbers a little bit. So look at Nvidia Nvidia's forecast is four dollars and 11 cents for the uh, sorry, uh, 456 456 for January 2024. So that's pretty much year end. So if I go 311 divided by 456, we're looking at a 68 times forward p E ratio good Lord and then the growth thereafter is expected to be about 23 24 go with even 25.

To be generous, you're looking at a PEG ratio that's 2.7 well above 1.7 We're we're in phase for example, sits right now. uh so I think probably End Face has has some work to do in terms of uh, the stock going up versus uh Nvidia being a little probably uh, over allocated to right now probably isn't too good. Going into earnings you're you're set up on on this pedestal of perfection. Look at Uh Tesla for example, 346.

So if I go 188 divided by 346 end of the year earnings per share that trades for 50 4.4 times use a 30 EPS growth. you're sitting at 1.8 for a peg. so both test Tesla Identity is looking a lot more delicious in terms of evaluation point of view. So I I Personally like looking at valuations that way I think sometimes we can over complicate analysis with uh with with too many spreadsheets and uh, too much uh, you know too much over analysts or analysis rather and we forget that uh, that Ultimately, valuations do matter and in the case of many stocks, valuations right now don't actually look so horribly extreme.

And I think that sort of reiterates what we just saw in the Bank of America piece. so hopefully at least some of that is insightful to you. Uh, we're gonna keep going with another sag, But in the meantime, thanks for watching this segment. Check out those programs on how to make more money and get sh19 done faster.

Remember we've got a big price increase. After that AI segment drops on June 1st so that means 11 59 p.m on June 1 we'll have a big price increase and then the AI segment will be out, which will be really cool. So uh yeah. Cheers to Uh Ai and actually becoming more productive in your day! Rather than wondering how am I going to use this in my life? I'll help you now I Want you to know this: When it comes to AI time is what's going to make you money, and if you can prove that value to an employer, you'll always be able to be employed.

So this is another way of making sure that you don't get replaced.