Highest stock valuation in history
The Broad Market Index was down 4.77% last week and 54% of stocks outperformed the index.
This is the last update for the 2n/a quarter of the Securities and Exchange Commission (SEC) reporting period. The first third-quarter financial statements are for companies with fiscal quarters ending in August and beginning next week.
We keep seeing a strong 2n/a quarterly acceleration in corporate cash flow with strong sales growth, rising profit margins and rising overall profitability in the average business.
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Q2 2022 Hedge Fund Letters, Talks & More
Overall business growth is still strong
The addition over the past two weeks of 70 new companies has changed the composition of the broad market a bit and has only added more strength on average. With sales growth averaging 18% and profit margins rising, corporate cash flow is accelerating at an unsustainable rate, even with inflation at 8.5%.
However, growth decreases on average
There is no possibility of reducing inflation with such strong business growth. The fact that current growth rates are so high supports the unrealistic expectation this is reflected in the highest stock valuation in history.
Growth has been declining on average and more frequently over the past year. It is a decline in the frequency of improvement in sales growth that signals the top and we have been selling stocks and raising cash as rising sales growth indicator dropped from 83% of companies at last year’s peak to 27% in the most recent period.
Growth will continue to fall, and our strategies are preparing for this with only accelerating companies as portfolio stocks and a large cash position. The most favorable scenario would be a steep and widespread decline in business growth.
Recent evidence suggests the opposite, where even though growth has been down for a year, companies are benefiting from inflation with both premium sales growth and gross profit margin rising. Inflation is firmly anchored and only a very aggressive tightening of monetary policy has a chance of slowing it down anytime soon.
This is why the stock market is vulnerable to a sharp decline now. Lower growth and higher interest rates are a double negative for equities. And there is no place to hide. As we have seen, rising interest rates lower the value of all assets.
Short-term bonds (cash alternatives) are our best bet now as they benefit from rising interest rates. And we need to get growth into the portfolio as soon as possible. The signal that we can reduce our cash and repurchase shares will be an increase in the frequency of sales growth.
This improvement in measurement marked the bottom of every decline in growth in the data record. We should see this improvement in 2023. In the meantime, the question is how steep the fall in growth will be and, more importantly, how best to prepare for it.
Otos. io SEC Reporting Database
The recent SEC filing update is 100% complete. The volume of SEC filings will decrease in the coming weeks.
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S&P 500 Index Quarterly Summary
Monday, September 19, 2022: The S&P 500 stock index is up 63% against the Otos Total Market index since the May 2011 low. The current relative price to sales is roughly in the middle of the range in the index file.
Last week, the S&P 500 stock index fell 5.0%, compared to a 4.8% decline for the Otos Total Market Index. Winning stocks in the S&P 500 were 22, or 4.6% of the index total, compared to a winning stock frequency of 4.9% among the 3,979 stocks in the stock universe. from Otos.
We collected Q2 2022 sales data for 467 of the 479 comparable record labels in the S&P 500 Index, representing 98% of equity value. The capital-weighted average sales growth rate of the index is 17.0%. The proportion of the index’s market capital represented by rising sales growth companies is down to 16.0% from 40.3% last quarter.
Currently, sales growth is high in the S&P 500 Index record but lower last quarter. The proportion of total market capital represented by the upside Gross margin companies is down to 40.7% against 48.9% in the last quarter.
The index records a rising gross margin. Inventories are on the rise, which reduces the chances of a future increase in gross margin. SG&A expenses are low in the index record and are rising and interest charges are falling.
This implies that the index has limited room to control costs further and that rising costs are slowing the rate of growth of EBITDA relative to sales. Gross margin is growing at a faster rate than SG&A expenses, producing a growing EBITDA margin.
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