Up, Up, and Away
Stocks still look inexpensive even as the bull market continues to hit new highs
Of course, it's too soon to tell if this bull market will morph into the Energizer Bunny. But market strategists are hopeful that this rally will continue, in large part because of the surprising strength of corporate earnings-which is a big reason why the market's P/E is so low to begin with.
No doubt, corporate profits are slowing. After growing 19 percent in the third quarter of 2006 and 10.6 percent in the fourth, first-quarter earnings for companies in the S&P 500 are expected to rise a more modest 8.5 percent, according to Thomson Financial.
But less than two months ago, Wall Street thought corporate earnings would grow just 3.7 percent. So a growth rate near 9 percent is turning out to be a cause for celebration.
Jack Caffrey, equity strategist for JPMorgan Private Bank, notes that 2 to 3 percentage points of the S&P's earnings gains were attributable to the falling dollar, which increased the value of foreign profits earned by U.S.-based multinationals.
But regardless of the reasons, the fact that corporate profits have risen much faster than expected may explain why investors haven't had time to adjust. The question is: Will investors start to ratchet their expectations higher now that profits have been running so strong?
As long as investors don't get too far ahead of themselves-and barring any unforeseen geopolitical crises-Wall Street thinks this bull may still have room to roam.
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