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Corporate Earnings Are Key to Projected 8-Percent Growth in S&P 500 and a 25,000 Dow by 2022

Donald Hood | Thursday 30 August 2012 ( 0 Comment)
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 (1888PressRelease) Noted Wealth Advisor and Author Selwyn Gerber Sees Bull Market Continuing, Advising Investors to Focus More on Corporate Earnings, Less on General Economy

 
According to Selwyn Gerber, CPA, chief strategist and founding member of RVW Associates and author of the recently published book, The Wealth Blueprint, the mainly overlooked bullish stock market that started during March 2009 is likely to continue for as long as a decade. His company projects an 8-percent growth in the S&P 500 and a Dow Jones reaching 25,000 by 2022. 
 
"Investors are making the classic mistake of following the crowd and focusing too much on the condition of the general economy instead of keying their wealth-building decisions on corporate earnings, profitability and other relevant data," said Gerber. "The average investor is reacting from fear, which clouds his or her thinking, resulting in a failure to recognize a number of important and positive signals." 
 
According to Gerber, fear actually signals a bull market, as does the investing crowd's recent strategy of moving an enormous amount of funds from equities into bonds. He says individual investors are too focused on seeking protection in fixed-income yields and mistake risk for volatility. 
 
"Typical investors have missed a once-in-a-decade doubling of equity prices," Gerber adds. "Holding a group of diverse index-based ETFs allows investors to remove individual stock risk and to participate in the long-term upward movement of equity markets in a tax-efficient and low-cost manner. After all, history is on the side of the bulls, and we like our clients to view the market as a man walking up the stairs with a yoyo in his hand. We watch the feet, not the yoyo.
 
"The larger enterprises are a screaming bargain," Gerber continues. "With an earnings yield of more than four times the interest rate on the 10-year Treasury, we're at bond valuations that are absurdly high - and equity prices significantly undervalued. That ratio has historically averaged approximately two to one." 
 
New data that helps to support Gerber and his company's advice to its clients is found in the release of Q2 2012 earning statements. According to Factset.com, 71 percent of S&P 500 companies have reported earnings more than the mean estimate, but just 42 percent have reported sales above the mean estimate.
 
"It's clear that corporate balance sheets are healthy and strong, despite the performance of the slowly recovering economy," Gerber said. "We interpret this data to suggest that although sales volumes may show slow grow, profits are on a significant upswing. Corporations are on this solid footing because they are utilizing more outsourcing and just-in-time-inventory methods as well as doing a better job of integrating technology into their operations, which reduces the number of employees." 
 
Gerber cites the example of Johnson & Johnson, which currently has a dividend yield of 3.6 percent on its common stock, significantly exceeding the interest rates on its own bonds. Currently, the J&J bonds maturing in 2019 yield 2.8 percent.
 
Another important key to the continuation of a bull market that's already 41 months old, says Gerber, is a comparison to the first 41 months of bull markets in 1982, 1990, 1995 and 2002. Data from Richard Bernstein Advisors LLC, and Bloomberg shows that the performance of the current bullish cycle falls within approximately the middle of the range of these earlier bull markets. 
 
"None of the signs indicates an end to this bull market any time soon," said Gerber. "Typically when bull markets are ending, valuations are extreme, the Fed is tightening monetary policy and investors are too enthusiastic about potential equity returns. Today, the signs are virtually the opposite. Valuations are anything but extreme, investors have no enthusiasm for equities - in fact, they are avoiding them - and the Fed is very likely to loosen monetary policy further."
 
Gerber added that the current fear factor comes at a high price for investors because they haven't benefitted from the doubling of the U.S. equity market. The good news is that the opportunity is still available, especially if the current cycle matches the historical trend.
 
About Selwyn Gerber and RVW Investing, LLC: Selwyn Gerber is a trained economist and investment counselor and founder of RVW Investing LLC. It is a Registered Investment Advisor owned and managed exclusively by CPAs, who are also SEC-licensed as Registered Investment Advisors. The team also includes trained economists and Personal Financial Planners. The company's Model RVW Equity Portfolio currently includes 11 ETFs, which provide cost-efficient access to more than 5,500 leading enterprises, globally.
 
http://www.rvwinvesting.com/
 
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