The short view: Two Dow components, JPMorgan Chase (JPM -0.60%) and Wells Fargo (WFC 0.18%) will report earnings before the market open tomorrow, providing investors with important clues regarding the state and outlook of the banking sector, the securities industry, and the broader economy. JPMorgan is the largest U.S. bank by assets, and Wells Fargo is the nation's number one mortgage lender; together, they represent over $3.5 trillion in assets. These will be the key earnings reports for the day; barring a breaking news story, they're likely to be instrumental in shaping market sentiment tomorrow. JPMorgan releases its results at 7AM ET, Wells Fargo will do so an hour later.
The long view: Hat-tip to Jason Zweig for his This Day in Financial History, according to which, October 11th is a milestone date in the historical secular bull/ bear market cycle. On October 11, 1982, the Dow (^DJI 1.18%) closed at 1,102. 79 -- the first time the index closed above the previous high of 995.15, which it had set nearly seventeen years earlier, on February 9, 1966. The secular bear was finally dead, and 1982 marked the beginning of a roaring bull market. Today, with the Dow and the S&P 500 (^GSPC 1.26%) approaching their previous highs, which were set in October 2007, are we to conclude that the stock market is on the eve of a major bull run? Not so fast!
Using data compiled by Robert Shiller of Yale, I find that, on October 11, 1982, the S&P 500 was valued at barely more than eight times trailing 10-year average real earnings-per-share -- very cheap by historical standards. By contrast, the index's current multiple, based on the same earnings measure, is 21.5, which suggests stocks aren't cheap. In fact, that figure is not much below the multiple at the beginning, not the end of the 1966 to 1982 bear market (24.1 on February 9, 1966).
As I noted in this column two days ago, on the occasion of a different stock market anniversary, valuation is a key determinant of long-term future returns. The others are earnings growth and income return, and few stocks have excelled in this area like The 3 Dow Stocks Dividend Investors Need. Click here to claim your free report on these wealth-creating juggernauts.
