Stocks: Put Time on Your Side
The “Fed model” is a theory of equity valuation that compares the stock market’s earnings yield (E/P) to the yield on long-term government bonds.
Gross domestic product (GDP): The monetary value of all the finished goods and services produced within a country's borders in a specific time period, though GDP is usually calculated on an annual basis. It includes all of private and public consumption, government outlays, investments and exports less imports that occur within a defined territory.
The price-to-earnings (P/E) ratio, also known as the multiple, reflects how much a stock costs relative to its earnings. It is calculated by dividing the current stock price (the P) by the current earnings (the E). Forward-looking numbers in P/E Yr+1 are from IBES estimates at the relevant point in time.
The Shiller Cyclically Adjusted Price to Earnings (CAPE) ratio is a valuation measure usually applied to the U.S. S&P 500 equity market. It is defined as price divided by the average of 10 years of earnings (moving average), adjusted for inflation.
The “best” day to invest is defined as the day that the Dow Jones Industrial Average was at its lowest level for the given year based on historical data.
The S&P 500® Index is widely regarded as the standard for measuring large cap U.S. stock market performance and includes a representative sample of leading companies in leading industries.
A Note about Risk: The value of investments in equity securities will fluctuate in response to general economic conditions and to changes in the prospects of particular companies and/or sectors in the economy. While growth stocks are subject to the daily ups and downs of the stock market, their long-term potential as well as their volatility can be substantial. Value investing involves the risk that the market may not recognize that securities are undervalued, and they may not appreciate as anticipated. The value of an investment in fixed-income securities will change as interest rates fluctuate and in response to market movements. As interest rates fall, the prices of debt securities tend to rise. As rates rise, prices tend to fall.
Indexes are unmanaged, do not reflect the deduction or expenses, and are not available for direct investment.
No investing strategy can overcome all market volatility or guarantee future results.
This material is provided for general and educational purposes only. The examples provided are for illustrative purposes only, and are not indicative of any particular investor situation.
The opinions in Market View are as of the date of publication, are subject to change based on subsequent developments, and may not reflect the views of the firm as a whole. The material is not intended to be relied upon as a forecast, research, or investment advice, is not a recommendation or offer to buy or sell any securities or to adopt any investment strategy, and is not intended to predict or depict the performance of any investment. Readers should not assume that investments in companies, securities, sectors, and/or markets described were or will be profitable. Investing involves risk, including possible loss of principal. This document is prepared based on the information Lord Abbett deems reliable; however, Lord Abbett does not warrant the accuracy and completeness of the information. Investors should consult with a financial advisor prior to making an investment decision.