Some facts are more disconcerting than others. For instance, top-line sales at S&P 500 corporations will decline for the second consecutive quarter for the first time since 2009. Equally discouraging? Roughly 70% of these companies (77/106) have reported negative profit-per-share outlooks. Meanwhile, earnings-per-share (EPS) prospects are expected to fall across the entire S&P 500 space. It follows that price-to-earnings (P/E) and price-to-sales (P/S) ratios will place stock assets at even more ridiculously overvalued levels.

Few market participants care about the so-called fundamentals in late-state bull markets. Indeed, traditional metrics of stock valuation simply don’t matter (until they do) and complacency reigns supreme (until it does not).

Those with extremely bullish biases attempt to spit shine the lusterless economy. However, the Federal Reserve itself downgraded its 2015 forecast for economic expansion. The downgraded pace that the Fed now offers is 1.8%-2.0% – a pace that is slower than the stimulus-stoked 2.1% achieved since the end of the Great Recession.

In truth, bulls should hang their collective hat on the $2.7 trillion that S&P 500 corporations borrowed at ultra-low rates over the last past six years. These companies bought back their own stock shares at the highest percent-of-total-cash available since 2007.


Several things become clear about corporate debt binges at record low rates and the subsequent use of cash to reclaim shares. First, companies are not particularly talented at judging when to plow dollars into the acquisition of their stock shares. They spent an ever-increasing percentage in the 2003-2007 stock market bull when they might have been better served to spend more modestly on shares and/or use the cash more productively (e.g., hiring, training, R&D, equipment, etc.). Moreover, they spent lower and lower percentages as the 2008-09 bear market raged on when acquiring shares during the bulk of the bear would have been far more favorable.

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