RECENT NEWS

Wed, 18 Jul 2007 (Beverly Hills, CA) - At Ascendant Asset Advisors, we view the second straight quarter of 8% earnings growth as pretty good. The problem is that the market is rising at a pace far in excess of earnings growth. The S&P is up 20.9% over the past year, and is up at an annual rate of 14.6% so far this year.  That is well ahead of the current 8% earnings trend. As a result, the P/E multiple for the S&P 500 has been rising and as a result it was a difficult time for the sellers of call options.  The P/E is now up to 17.1 for operating earnings which isn't too bad. Further expansion to 18 is possible given the current 2% inflation rate.  However, multiples typically rise when interest rates are expected to decline, or earnings growth is expected to increase but there is very little chance that interest rates are heading lower, and earnings trends are not inspiring. Yet with all of this volatility our clients were able to recover nicely in June and July looks to be a great month.

The third quarter earnings estimates currently stand at just 2% and so it is our belief that the market is therefore rallying faster than what is supported by the fundamentals.  This is why we refer to the recent excessive optimism as hype.  It is why we say that the market is outrunning the fundamentals.  It is the reason we take a neutral viewof the market going forward and why we believe there is a risk that a shift in sentiment pulls the market back in line with the fundamentals but only temporarily before finishing the year on an upbeat note near our current levels.

For more information, please contact us at +1 (310) 651-8000.