Employment, Retail Sales, Personal Income & S&P 500 Intrinsic Value

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Employment, Retail Sales, Personal Income & S&P 500 Intrinsic Value

Employment, Retail Sales, Personal Income & S&P 500 Intrinsic Value by Todd Sullivan,

“Davidson” submits:

Economic activity remains in expansion and S&P 500 ($SPY) remains close to the Value Investor Index as pessimism remains intact. Economic activity is reflected in Light Weight Vehicle Sales Household Survey(Employment), historically low of % Initial (Unemployment) Claims vs. Household Survey and historical highs in Real Personal Income and Real Retail & Food Service Sales. Trends in each of these economic indicators tracks the general trends of previous recoveries. Pessimism has been expressed with nearly every monthly report since early 2009. Pessimism persists today as can be seen in my Value Investor Index.

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S&P 500 Intrinsic Value

[drizzle]

S&P 500 Intrinsic Value

The S&P 500 Value Investor Index is my application of modern data to Knut Wicksell’s ‘Natural Rate’ first postulated in 1898. Wicksell saw economic patterns more than 100yrs ago for which we only developed measurement tools during WWII, 50yrs later. Only today, with enough data with which to view the past 70yrs, can the Value Investor Index be constructed. It is based on fundamentals and captures in essence how Value Investors evaluate market prices vs. economic fundamentals. Value Investors are most bullish at lower prices, especially during recession lows. Many think Value Investors know how to buy into market lows as if they know how to judge when a market will make a low. The facts are quite different. In my research, it is Value Investors who create market lows through their buying activities. They compare long-term earnings power of companies to the long-term performance of economic growth and use this to decide when prices are attractive. This is what creates the individual stock lows and when grouped together these buying decisions are responsible for the market recessionary lows we see throughout history. The majority of investors not understanding this methodology invest using price trends. These investors are called Momentum Investors and comprise the bulk of investors and their views comprise more than 95% of what the media reports. This month’s Value Investor Index level of $2,094 with the S&P 500 at $2,170 shows that Momentum Investor pessimism continues to dominate markets.

  1. The Value Investor Index is based on economic fundamentals.
  2. Market prices are based on market psychology.
  3. The difference is a measure of Value Investor Pricing vs. Momentum Investor Pricing

S&P 500 Intrinsic Value

S&P 500 Intrinsic Value With economic activity continuing on trend coupled to continued market , investors are provided a good basis for expectations of higher stock prices the next several years. Markets do not have major peaks in my experience unless market pessimism evolves into several years of optimism. It requires a period of excess optimism for markets and economies to grow to create the excesses which lead to significant market corrections. We have had 7yrs of economic and market performance without once turning optimistic. For these reasons, I expect to see several more years of economic growth and higher market performance. [/drizzle]

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Todd Sullivan is a Massachusetts-based value investor and a General Partner in Rand Strategic Partners. He looks for investments he believes are selling for a discount to their intrinsic value given their current situation and future prospects. He holds them until that value is realized or the fundamentals change in a way that no longer support his thesis. His blog features his various ideas and commentary and he updates readers on their progress in a timely fashion. His commentary has been seen in the online versions of the Wall St. Journal, New York Times, CNN Money, Business Week, Crain’s NY, Kiplingers and other publications. He has also appeared on Fox Business News & Fox News and is a RealMoney.com contributor. His commentary on Starbucks during 2008 was recently quoted by its Founder Howard Schultz in his recent book “Onward”. In 2011 he was asked to present an investment idea at Bill Ackman’s “Harbor Investment Conference”.

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