My belief is that treasury bond yields, which were down again today, are headed for the 4% range. Should the yields reach 4%, stocks could easily support P/E ratios of 25! Current earnings projections put the ratio at less than 14. Even assuming that there's no increase in earnings, one could still imagine stocks going up 78%! Wow! (25/14 = 1.78).
Now don't go running around telling folks that I said the market is ready to move up 78%. I can imagine it happening but I am not predicting it will. In the energy area, I believe earnings will go up this year but I believe PE ratios will decline. The net result will be that most energy stocks companies will enjoy good earnings but the price of the stocks will not go up.
Here are some brief takes for the current market:
The Pirates of the Caribbean sequel set box office records. Disney (DIS) is on a roll.
Chip makers are ordering equipment: orders up 24.8% so far. Microsoft (MSFT) will release Gargantua programs by January 2007 so expect to buy new machines if you want to run the new stuff. Buy equipment and software companies if you want to make money.
MSFT and Google (GOOG) are in yet another race. MSFT will probably be the first to market a hand held combination device that will be kin to a game boy, kin to an I-Pod and kin to a portable computer. The Google product will be more of a GPS mapping, location service and communication device. The market for these products is going to be huge.
Expect continued merger activity in the equipment makers, along the lines of the Nokia (NOK) deal. Motorola (MOT), Texas Instruments (TXN), Nortel (NT) and others may need to get big in a hurry or they may need to partner with Google.