Some Columbus Day Sadness
US stocks ground down even lower today, with the S&P 500 closing at 1187.33, leaving it with a price-to-2005-earnings ratio of just about 16, barely above the P/E ratio's historical average since 1935, and almost a full percentage point below the average P/E since 1960. The market may not be screaming "buy" based on its long-term history, but we are at one of the tastier price-to-earnings points in recent history.
The weekend bankruptcy filing of auto parts supplier Delphi both reflected and compounded the trouble of US automakers, and recent earnings guidance by other US companies didn't make anybody smile. Estimate-beating earnings reports by Alcoa and Genentech may lighten the mood tomorrow, but reporting season is just beginning.
More economists and finance types are taking notice of the recent performance divergence between US and foreign stocks, with US stocks flattening out and international stocks, particularly in emerging economies and on the Pacific rim, outshining their stateside couterparts. If only more US portfolio managers could abandon their home country biases and insecurities, perhaps their clients would do better. Many backward-looking stock portfolios are still only allocating a small percentage of their investments to international issues.
The barn-door may be closing on international stock outperformance for the short-term, but a hefty international allocation seems necessary for long-haul success, at least according to the likes of Burton Malkiel, Jeremy Siegel, and anybody else who has been paying attention to the direction of the global economy.
What profiteth it a portfolio manager's clients to beat the S&P 500 when the S&P 500 is getting trounced by the world?