Five years from U.S. stock market's low, it's joy versus worry

Sun Mar 9, 2014 2:33pm EDT
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By Caroline Valetkevitch

NEW YORK (Reuters) - Five years ago, the United States was in the midst of its worst recession in seven decades, and stocks were feeling it.

On this day in 2009, the S&P 500 hit its nadir, closing at 676.53. That low marked a climax of a 16-month selloff that took more than half the S&P 500's value.

Since that day, the Standard & Poor's 500 index has gained more than 177 percent, the best rolling five-year performance since the June 1996 to June 2000 period that covers the dot-com bubble.

Naturally, some investors are questioning whether the bull run is nearing an end. Investors cited a number of reasons to be nervous. Though a number of these factors have been present for some time, the following stand out as concerns:

* Valuations: Profit growth, and especially revenue growth, may not be strong enough to support current price levels. Profit growth has slowed considerably from the peaks of this earnings cycle. There are concerns that revenue growth will be lackluster while economic growth remains mediocre.

The S&P 500's forward price-to-earnings ratio, at 15.8, is its highest since the fourth quarter of 2008, Thomson Reuters data showed. It comes as revenue growth has slowed, eating into profits, and productivity growth declined in the first quarter, suggesting slimmer margins in the next earnings period as well.

S&P 500 revenue growth has averaged just 3.2 percent since March 2009, while earnings growth has averaged 16.2 percent, Thomson Reuters data showed. For the most recent reporting period, revenue growth is estimated at 1 percent while profit growth is forecast at 9.8 percent.

The stock market has seen higher price-to-earnings ratios - notably during the technology bubble and the end of the 2007-2008 run, but to some, that's not comforting.   Continued...

Traders work on the floor of the New York Stock Exchange March 5, 2014. REUTERS/Brendan McDermid