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Underneath the Headlines, the Market has gotten Cheap
Buried beneath this daunting market performance are improving fundamentals. First quarter earnings season is about to kick off, and in a welcome change, analysts have been upgrading their forecasts and penciling in nearly 20 per cent profit growth for the S&P 500. Revenue growth expectations are accelerating as well. The bottom line: when you strip away the headlines, equities are now cheap.
Owning equities entitles investors to a stream of dividends based on earnings. Over time, the cumulative market return is constrained by the cumulative growth in earnings and dividends. For the first time since 2016, the S&P 500 is cheap relative to cumulative earnings and dividend growth thanks to lower equity market values and an improving earnings outlook. As of now, the market is 7.5 per cent undervalued relative to cumulative earnings and dividends through Q1/2018. While an unlikely trade war has the potential to push consumer prices up and productivity down, investors should take comfort in knowing that equity markets are now inexpensive relative to what really matters: earnings and dividends.
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About Cresset
Cresset is an independent, award-winning multi-family office and private investment firm with more than $40 billion in assets under management (as of 7/13/2023). Cresset serves the unique needs of entrepreneurs, CEO founders, wealth creators, executives, and partners, as well as high-net-worth and multi-generational families. Our goal is to deliver a new paradigm for wealth management, giving you time to pursue what matters to you most.
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