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Oct. 26, 2019, 10:13 a.m. EDT

Why the stock market has a ‘great distance to rise’ in the coming years

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By Shawn Langlois, MarketWatch


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This market has a long way to climb, according to Michael Kramer of Mott Capital Management

There’s a lot to be glum about in the market — and the world, really — at the moment, but in our call of the day Michael Kramer, founder of Mott Capital Management, is confident there’s serious upside potential in the years ahead.

It all starts with valuations.

Kramer points out that the earnings multiple of the S&P 500 /zigman2/quotes/210599714/realtime SPX +0.60% on a trailing 12-month basis recently touched 19.7, the lowest level since June 2016 — a time when “the world literally felt as if it was on the verge of a meltdown”. (That multiple is a key method of measuring the value of a stock relative to earnings.)

But, in the reality that perhaps matters most to markets, we were in the midst of an earnings recession that would soon come to an end.

The bull market had life and, three years later, it still does, he says.

Read: How big will this year-end rally turn out to be?

For some context, Kramer used earnings data going back to 1988 and projections through to 2020, then overlaid that with a chart of the S&P for what he says is a self-explanatory reflection of where we stand.

And, more importantly, where we’re headed.

Kramer explained that the numbers show attractive equity valuations and, if corporate earnings continue to increase as expected, the market “has a great distance to rise” in the coming years.

Stocks are rising this morning, though not by “a great distance” yet.

The market

The Dow /zigman2/quotes/210598065/realtime DJIA +0.57%  , S&P /zigman2/quotes/210599714/realtime SPX +0.60%  and Nasdaq /zigman2/quotes/210598365/realtime COMP +0.64%  are all in the green as trading begins. The pound /zigman2/quotes/210561263/realtime/sampled GBPUSD +0.1863%  is fairly volatile as investors wait for more Brexit updates after Prime Minister Boris Johnson’s deal vote was a non-starter on Saturday. Europe /zigman2/quotes/210599654/delayed XX:SXXP +0.40%  stocks are up.

The chart

Yes, it’s a bit hairy out there.

/zigman2/quotes/210599714/realtime
US : S&P US
3,115.34
+18.71 +0.60%
Volume: 806.17M
Nov. 15, 2019 12:48p
loading...
/zigman2/quotes/210598065/realtime
US : Dow Jones Global
27,939.89
+157.93 +0.57%
Volume: 122.69M
Nov. 15, 2019 12:48p
loading...
/zigman2/quotes/210599714/realtime
US : S&P US
3,115.34
+18.71 +0.60%
Volume: 806.17M
Nov. 15, 2019 12:48p
loading...
/zigman2/quotes/210598365/realtime
US : U.S.: Nasdaq
8,533.41
+54.39 +0.64%
Volume: 1.04M
Nov. 15, 2019 12:48p
loading...
/zigman2/quotes/210561263/realtime/sampled
US : Tullett Prebon
1.2904
+0.0024 +0.1863%
Volume: 0.0000
Nov. 15, 2019 12:47p
loading...
/zigman2/quotes/210599654/delayed
XX : STOXX
406.04
+1.63 +0.40%
Volume: 0.00
Nov. 15, 2019 5:50p
loading...
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