Sector Valuation Analysis
By Chris Puplava, December 19, 2006
Sector valuation analysis was done using the Ford Equity Research Value Graphs looking at the valuation of the S&P 500 sectors over two different time periods using the price-to-earnings ratio (PE) over a one year and a three year period. The Ford Value Graphs use the high and low P/E extremes (for a stock or index) over a set time period multiplied by the 12-month operating earnings per share to come up with high and low valuation bands. The Ford Value Graphs help give an indication of whether or not a stock/index is undervalued or overvalued as well as giving a graphical illustration of the earnings trend for an index/stock.
Please note that the PE values used are biased in that they do not take into account a long history of PE values, and are simply the high and low values over a given period, which can either be above or below the historical average taken over decades of data. Below are the charts of the S&P 500 sectors.
Figure 1. Consumer Discretionary - 1 Year
Figure 2. Consumer Discretionary - 3 Year
Figure 3. Energy - 1 Year
Figure 4. Energy - 3 Year
Figure 5. Financials - 1 Year
Figure 6. Financials - 3 Year
Figure 7. Healthcare - 1 Year
Figure 8. Healthcare - 3 Year
Figure 9. Industrials - 1 Year
Figure 10. Industrials - 3 Year
Figure 11. Materials - 1 Year
Figure 12. Materials - 3 Year
Figure 13. Consumer Staples - 1 Year
Figure 14. Consumer Staples - 3 Year
Figure 15. Information Technology - 1 Year
Figure 16. Information Technology - 3 Year
Figure 17. Telecommunications - 1 Year
Figure 18. Telecommunications - 3 Year
Figure 19. Utilities - 1 Year
Figure 20. Utilities - 3 Year
To summarize the sector results covered above I have included the following table that provides a short-term and intermediate-term analysis of the S&P 500 sectors from a P/E multiple standpoint.
|Sector||Short-Term Valuation (1-Year)||Intermediate Valuation (3-Year)|
Economic Reports New Residential Construction
Housing starts increased 6.7% to 1.588 million units in November after October's decline of 13.7%, the largest decline of the current housing downturn, making for an easier month-over-month comparison's for November. On a year-over-year basis (YOY), housing starts are down 25.5% after being down 27.3% in October. The increase in housing starts was not uniform across the four regions of the country with total housing starts in the Northeast and South rising by 8.6% and 18.5% respectively, while the Midwest and West fell by 6.3% and 8.1%.
Producer Price Index (PPI)
The PPI rose a sharp 2.0% in November, significantly higher than the consensus estimate (Thomson Financial Consensus) of 0.7%.
Inflation was seen across a broad range of products with the PPI rising 0.9% YOY. The increase in the headline PPI came from a rise in energy prices though the core PPI rose as well, rising 1.3%, the highest monthly increase since July 1980. Gasoline prices rose 17.9% in November after falling 7.9% in October with energy prices leading to significant inflation at earlier stages of processing. Prices for crude energy products rose by 35.8% with prices for intermediate energy products rising by 4.2%. On a YOY basis, core crude goods rose 17.8%, core intermediate goods rose 5.1%, and core finished goods rose 1.8%, clearly showing that inflation was highest in the earlier stages of processing.
The stock market fell in early morning trading from the negative surprise in the November PPI report and the drop in the Thailand stock market after the Thai government announced controls on foreign investment. The markets rebounded with an attempt to rise above yesterday's close before selling continued in the middle of the day driving the indices lower. The markets rallied later in late afternoon trading with the DJIA posting a gain of 30.05 points to close at 12,471.32. The S&P 500 finished in the green rising 3.07 points to close at 1425.55 with the NASDAQ down, falling 6.02 points to close at 2429.55.
Treasuries sold off today on the inflation surprise seen in the PPI with the 10-year note yield rising to 4.599%, up 1.2 basis points. The dollar index posted a loss on the day, falling 0.54 points to close at 83.46. Advancing issues represented 52% and 42% for the NYSE and NASDAQ respectively, with up volume representing 44% and 53% of total volume on the NYSE and NASDAQ.
Energy commodities were mostly up on the day after opening in the red this morning. Precious metals were flat in early morning trading before rising in the afternoon with gold up $6.50/oz to $622.75/oz and silver rising $0.18/oz to close at $12.655/oz. Base metals were mixed on the day, with spot lead prices showing the largest decline (-2.32%). Agriculture and softs were also mixed with spot sugar putting in the largest advance (+5.29).
Overseas markets were mostly down with the largest declines coming from Japan's Nikkei 225 index and Mexico's Bolsa index, down 1.09% and 0.91% respectively
The ten S&P 500 sector performances were mixed on the day with energy leading the pack, up 1.05% on the day followed by materials and health care, up 0.69% and 0.55% respectively. Telecommunication and technology led the decliners, down 0.65% and 0.30%.
Have a pleasant weekend,
© 2006 Chris Puplava