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Why Dan Loeb Is Bullish on the US Stock Market

PART:
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Part 3
Why Dan Loeb Is Bullish on the US Stock Market PART 3 OF 5

Dan Loeb: S&P 500 Valuation Isn’t a Concern

Dan Loeb on market valuation

Legendary hedge fund manager Dan Loeb is fully optimistic about market movement according to a recent investor letter.

Dan Loeb: S&amp;P 500 Valuation Isn’t a Concern

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Loeb said, “low interest rates coupled with still solid earnings growth suggest valuations can remain high amid a tame business cycle, absent an exogenous shock.” Many market participants believe that the Fed’s ultra-low interest rates have already artificially boosted the prices of various assets. In the present scenario, the lower interest rate environment, improvement in consumer spending, and a weaker US dollar (UUP) (USDU) are mainly supporting the economic growth in the United States (IWM) (QQQ).

The S&P 500 Index is presently trading at a trailing price-to-earnings ratio of 22.7x. The forward price-to-earnings ratio of the S&P 500 Index (SPY) is at 17.5x, which is higher than the historical average of 15x. However, Dan Loeb says it is not a concern for the market, as strong earnings growth and softer monetary policy are supporting this valuation.

The expectations for solid improvement in earnings in the next two quarters of 2017 and in 2018 are making investors more bullish on the index. The S&P 500 already posted double-digit earnings growth both in Q1 and Q2 of 2017. Dan Loeb estimates 12% earnings growth for the S&P 500 Index in 2018.

He also said, “while we invest a lot of time and effort in the analysis of policymaking, it doesn’t appear for now that any of the incremental changes under consideration in tax cuts or rates, whether or not they come to pass, will materially impact the markets.”

In the next part of this series, we’ll analyze Dan Loeb’s latest position in Dover (DOV).

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