From Teeka Tiwari, Editor, Jump Point Trader: This is going to be a volatile week. Don’t be surprised to see the Dow down 300 points one day… and up 300 points the next.
Twenty-four pieces of economic news—from manufacturing numbers to jobs reporting—will be released from various sources throughout this week. The numbers may be mixed. The result will be market volatility.
The key here for us is simple: Stay rational.
Earnings for the S&P 500 are predicted to come in at $124 for 2015. (The companies represented by one share of the index are projected to make $124 in earnings per share in 2015.) That puts the market at a forward (forward means future 12 months) price-to-earnings ratio (P/E) of 15.92 times earnings. The long-term average P/E for the S&P 500 is 16.
Long-term bull markets typically peak at a forward P/E of 25 times earnings. So, you can see we are a long way from that. This tells us that stocks are not overvalued.
We also have very bullish global monetary policies that will help propel U.S. stocks higher. The world is awash with central bank money looking for a return. Much of that money will find its way into U.S. stocks.
Plus, energy prices have dropped almost 60%, providing American consumers with billions in extra funds to inject into the economy, every day.
Bottom line: The long-term economic picture remains bullish. Stay rational during the volatility. We’ll use it to our advantage.