Tuesday, February 5, 2013

Why The Market’s Too Cheap To Pull Back

With the market up again today, the (seemingly ever-present) fear of a big drop is again receding. But here’s another reason (following yesterday’s argument against a correction) for why the market won’t see a sustained decline any time soon:

(Click for larger size.)

As�Jeffrey Kleintop, chief market strategist at LPL Financial writes:

The bull market is not likely to be over; if so, stocks would be ending a bull market with the S&P 500 priced at the lowest multiple of earnings at a bull market peak since WWII.� However, a pause with some ups and downs around the recently reached milestone may be in store. The dips may make for attractive buying opportunities for investors who have been underinvested in stocks in recent years relative to their long-term target allocation.

Of course, just because something hasn’t happened in 65 years, doesn’t mean it can’t happen now. But Kleintop’s data is a useful counterweight to some of the bearish-for-bearish-sake commentary we’re seeing — and if investors view the inevitable dips (like yesterday) as buying opportunities rather than reasons to flee, it could also be helpful advice.

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