Valuation

Current P/E (trailing twelve month reported earnings): 20,25

Trailing P/E is a useful tool for understanding what has already happened in the market.

Current PE

Shiller P/E (price divided by the average of ten years of earnings, adjusted for inflation): 26,30

The Shiller P/E is far more useful for calculating expected returns going forward.

Shiller PE

On forward and estimated earnings the picture is a bit better, but it isn’t cheap (historical comparison). Analysts are currently expecting double digit growth for 2014 earnings.

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Weak Breadth

“The number of stocks participating during the current run-up has been much lower than levels seen during prior breakouts this year. 70 % of the stocks in the index are currently above their 50-day moving averages, which is well below the breadth levels seen as recently as October when the index experienced its last big breakout to new highs. Throughout the year, we’ve seen breadth decline with each successive breakout, so it has definitely become more of a “stock-picker’s market” late in the year.” (BespokeInvestmentGroup)

Weak Breadth

Supportive Flows and Lack of Competitive Alternatives

Being constructive on equities.

“On March 19th 2013 we hiked our 12-months OMX30 target to 1320 (from 1200). On 23rd Dec 2013 the target was reached. On 3rd December our 12-months target for OMX30 was hiked to 1400 (from 1320). As explained in our latest Nordic Equity Strategy report, we argued that supportive flows and lack of competitive alternatives, rather than valuation, would lift stocks further.” (SEB)

European Equities

“European stocks are poised for a third year of gains, restoring almost all the losses suffered during the financial crisis, as economic growth overcomes record pessimism on earnings. Equities will rise 12 percent in 2014, according to the average projection of 18 forecasters tracked by Bloomberg News.The average estimate is the most bullish since at least 2010, with no strategist predicting a gain of less than 3.3 percent, and comes even as company analysts reduced income forecasts for an 85th straight week, a record streak, according to Citigroup Inc. data on Bloomberg.”

“More than 40 percent of fund managers surveyed this month by Bank of America Corp.’s Merrill Lynch said they are overweight euro-area equities, or own a greater proportion than are specified in global indexes, the highest for any of five regions.” (Bloomberg)

Strong buying of European Equities from US Investors.

European Equities