{"id":23296,"date":"2020-12-19T06:26:47","date_gmt":"2020-12-19T06:26:47","guid":{"rendered":"https:\/\/thepatientinvestor.com\/?p=23296"},"modified":"2020-12-19T06:31:45","modified_gmt":"2020-12-19T06:31:45","slug":"stock-prices-jay-powell-is-talking-through-his-hat","status":"publish","type":"post","link":"https:\/\/thepatientinvestor.com\/index.php\/2020\/12\/19\/stock-prices-jay-powell-is-talking-through-his-hat\/","title":{"rendered":"Stock prices: Jay Powell is talking through his hat"},"content":{"rendered":"

Daily COVID-19 cases in the US continue to climb, reaching 236,211 on Thursday 17th.<\/p>\n

\"USA:<\/p>\n

Unemployment claims jumped by 1.6 million in the week ending November 28, exceeding more than 1 in 8 of the total workforce (Feb 2020).<\/p>\n

\"DOL:<\/p>\n

Initial claims under state programs<\/a> climbed to 935,138 (unadjusted) by week ending December 12, compared to 718,522 for w\/e November 28, while initial claims under pandemic assistance programs run by the federal government jumped to 455,037 compared to 288,234 for w\/e November 28.<\/p>\n

Further escalation of both daily COVID-19 cases and unemployment claims is likely before vaccine distribution achieves a wide enough reach to make a difference. A major obstacle will be public reluctance to get the vaccine shot:<\/p>\n

\n

As states frantically prepare to begin months of vaccinations that could end the pandemic, a new poll finds only about half of Americans are ready to roll up their sleeves when their turn comes.<\/p>\n

The survey from The Associated Press-NORC Center for Public Affairs Research shows about a quarter of U.S. adults aren\u2019t sure if they want to get vaccinated against the coronavirus. Roughly another quarter say they won\u2019t. (Associated Press, December 10, 2020<\/a>)<\/p>\n<\/blockquote>\n

Federal assistance<\/h2>\n

Further federal assistance may soften the impact of rising unemployment on the economy but Senate leaders are yet to conclude a deal<\/a>. Both sides claim to want a deal but it seems unlikely that agreement will be reached before the Georgia run-off elections<\/a> on January 5th. If the Democrats win both seats, and a Senate majority, they will not need to compromise. Unfortunately, large numbers of the least fortunate will suffer before then. Real leadership from the White House, needed to break the logjam, is sadly absent.<\/p>\n

Jay Powell and stock prices<\/h2>\n

Jay Powell says he is relaxed about stock prices:<\/p>\n

Stocks at record highs and bond yields not far from their historic lows are telling two different stories, but Federal Reserve Chairman Jerome Powell said he isn\u2019t worried about the disparity.<\/p>\n

In fact, the central bank chief said during a news conference Wednesday<\/a>, the low rates are helping justify an equity surge that has gone on largely unabated since the March pandemic crisis lows.<\/p>\n

\u201cThe broad financial stability picture is kind of mixed I would say,\u201d Powell said in response to a CNBC question at the post-meeting media Q&A. \u201cAsset prices are a little high in that metric in my view, but overall you have a mixed picture. You don\u2019t have a lot of red flags on that.\u201d (CNBC, December 16, 2020<\/a>)<\/p><\/blockquote>\n

There is just one problem: bond yields are distorted by the Fed and do not reflect market forces.<\/p>\n

S&P 500 PEmax<\/h3>\n

If we take the S&P 500 Price-Earnings ratio based on the highest trailing earnings (PEmax), this eliminates distortions from sharp falls in earnings during a recession. The current multiple of 26.69 is the second highest peak in the past 120 years, exceeded only by the Dotcom bubble. By comparison, peaks for the 1929 stock market crash (Black Friday) and 1987 (Black Monday) both had earnings multiples below 20.<\/p>\n

\"S&P<\/p>\n

Payback model<\/h3>\n

If we use our payback model<\/a>, we arrive at a fair value estimate of 2169.50 for the S&P 500 based on:<\/p>\n