{"id":497,"date":"2013-09-04T15:28:51","date_gmt":"2013-09-04T15:28:51","guid":{"rendered":"http:\/\/www.wallstreetandkstreet.com\/?p=497"},"modified":"2013-09-04T15:28:51","modified_gmt":"2013-09-04T15:28:51","slug":"a-whiff-of-complacency","status":"publish","type":"post","link":"https:\/\/www.wallstreetandkstreet.com\/?p=497","title":{"rendered":"A Whiff of Complacency"},"content":{"rendered":"

Exactly a year ago we wrote a prescient post titled \u201cMuted Expectations Could Set the Stage for a Positive Stock Market Surprise.\u201d\u00a0 Analyzing Barrons<\/strong>\u2019 survey of 12 equity strategists, published in early September 2012, we suggested (incorrectly) that their forecasts of S&P 500 EPS might be slightly optimistic, but (very correctly) that their PE assumptions were extremely conservative. Specifically, their year-end 2012 S&P price targets of 1425 implied a trailing PE of 13.8x and a forward PE of 13.2x.<\/p>\n

\u201cWall Street\u2019s strategists,\u201d we noted, \u201care using PE assumptions that are very conservative by historical standards<\/b>, particularly considering that we are in a low-inflation, low-interest rate environment.\u00a0(italics in original)\u201d\u00a0 We argued that a positive economic surprise, such as a Romney victory, could boost the PE of the index well above the Wall Street consensus, producing strong stock market gains.\u00a0 Despite Romney\u2019s defeat, this PE expansion \u2013 which we subsequently heralded in multiple posts as \u201cvaluation levitation\u201d — is precisely what happened. Even after the recent pull-back, the market\u2019s trailing PE is 15.4x; at the market\u2019s recent peak it was 16.1x.<\/p>\n

Fast forward a year, and Street strategists have become decidedly more bullish:<\/p>\n