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Today's Market WrapUp 05.22.2008 Mon Tue Wed Thu Fri Goldberg Archive Bull
Market in Trust, Bear Market in Dividend Yields In October of 2007 the S&P 500 made a marginal all time high, and almost immediately turned tail and headed downward. From peak to trough, the S&P 500 went from about 1550 to a temporary bottom of just above 1250 in March 2008. The trading volume over the last few months shows there was a climatic level of trading that occurred during the January and March market sell offs. Since March, the S&P staged a “V” shaped vertical rally; yet the trading volume was not nearly as great on the vertical rally as during the sell offs. The apparent failure near an all time high suggests that the year 2000 high in the S&P 500 may have marked the beginning of a new secular bear market which, in spite of the eight year march to a marginal new high, has not ended. Remember, the 2000 high included contributions from a known and confirmed technology stock market bubble. So was the more recent S&P 500 high totally “clean” and supported by valuations? In my view, this new high is characterized by a general stock market bubble which is not getting any attention in the media or financial industry for several structural reasons, not the least of which are the more obvious bubbles that are taking place (and bursting) in real estate, US consumer debt, and also commodities (actually the commodity bubble is a legitimate one caused largely by central bank-created inflation). When was the last time you heard any serious discussion of dividend yields of stocks in comparison to those that occurred prior to the 1990s race to the 2000 high? Today’s stock market bubble is Wall Street and the financial industries’ “dirty little secret.” They’ll only tell you what they need you to know.
Still, unless the market action warrants it, you don’t need to know that the average dividend yield of S&P 500 stocks is just under 1.9% and dividends of less than 3% used to be cause for valuation alarm. (There are 113 S&P 500 stocks that pay no dividends at all.) All you have to do is believe that today’s businesses don’t require that corporations share their profits in any meaningful way with its shareholders. The foregoing discussion is presented to give a long view of things. It has no relevance in the short term. What may have legitimate relevance in the short term are:
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