Archive: October 2016

ROE Less COE Spread Drives Performance of S&P 500

The S&P 500 stock market average index has had a remarkable history of tracking the recovery in the return on equity (ROE) above the cost of equity (COE) for its average of 500 component companies (see Chart I).  Each time ROE has risen above COE, a bull market occurred as…

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Inflation Accelerates in 2016

Inflation has moved up in 2016, with most measures above 2%, the Federal Reserve target.  Given the Housing Market Index (HMI) and other leading indicators to the economy remain positive, inflation is expected to continue to accelerate into 2017.  Chart I   The chart above illustrates the year-over-year change…

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Community Bank Stocks Driven by Spread Between ROE and COE

In a previous article, the major bull market in bank stocks from the first quarter of 1995 to year-end 2006 of 300% was driven by the widening spread between return on equity (ROE*) and the cost of equity (COE*), as defined by IDC Financial Publishing, Inc. (IDC).  In the article,…

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