Good Morning,

U.S. equities closed mostly lower on Friday as investors digested disappointing economic data, following a record-setting day on Thursday. Retail sales for July came in unchanged, with economists expecting a 0.4 percent increase. Meanwhile, the July reading of the producer price index showed a decline of 0.4 percent, as economists forecast a 0.1 percent gain. Has the market gotten ahead of itself? Is the consumer showing signs of weakness?

What of valuation? Although we stress the analysis of individual businesses, it is interesting to consider the fact that yesterday the value of the S&P 500 index closed at yet another all-time high at 2185.79. The trailing 12-month P/E ratio for the S&P 500 now stands at 19.5, based on yesterday’s closing price (2185.79) and trailing 12-month EPS ($111.89). Given the high values driving the “P” in the P/E ratio, how does this 19.5 P/E ratio compare to historical averages?

The current trailing 12-month P/E ratio of 19.5 is above the three most recent historical averages: 5-year (15.9), 10- year (15.9), and 15-year (17.6). In fact, this marked the highest trailing 12-month P/E ratio for the S&P 500 since February 12, 2010, when the trailing 12-month P/E ratio was 22.3. On that date, the closing price of the S&P 500 was 1075.51 and the trailing 12-month EPS was $48.19.

This historically high reading should be taken into consideration yet we have yet to see signs of euphoria. Bullish side of the equation: improving earnings momentum, junk bonds holding up and loose central bank policies. Bearish sentiment: lowest volatility in the past year, slower global growth and U.S. election uncertainty.

Thought of the Week

"Beware of dissipating your powers, strive constantly to concentrate them. Genius thinks it can do whatever it sees others doing, but it is sure to repent of every ill-judged outlay." -Johann Von Goethe

Stories and Ideas of Interest

Investors appear to have placed a one way bet on Uber as the company that will be at the center of an utter transformation of our collective lifestyle. Steve LeVine for Quartz considers whether the consensus has miscalculated. What if the coming trends expected to propel Uber—primarily a decline in private vehicle ownership and the rise of self-driving, clean-powered cars—do generally unfold, but not quite transformationally? What if they take much longer to materialize than anyone is expecting?

Gold may have met its match after a stellar start to the year as a probable trio of rate hikes from the Federal Reserve through to the end of 2017 means there’s little room for it to rally further from near a two-year high, according to Pictet Wealth Management. With the dollar in a long-term uptrend, bullion isn’t likely to break the $1,430 an ounce level, and may stabilize around $1,250 to $1,300.

The world will consume less oil next year than previously thought due to a "dimmer macroeconomic outlook," the IEA said in its monthly oil market report. The energy watchdog expects global oil demand to grow by 1.2M barrels per day in 2017, a decrease of 100K bpd compared with last month's forecast. Adding to the recent pressure on crude prices, EIA data on Wednesday showed a U.S. crude inventory build of 1.1M barrels last week, while Saudi Arabia said its output hit a record high in July. Furthermore China’s imports of crude oil, coal and natural gas slowed in July, offering no solace for producers hoping demand from the world’s largest energy consumer may help mop up global gluts of the fuels.

China’s data showed a country in the doldrums. The slowdown continues, with investment growing at its slowest pace in more than 16 years in July. Retail sales in July were under expectations while industrial output for the month rose 6% from a year earlier—it was down from 6.1% in June. Perhaps Mark Hart’s 7 year bet that China’s currency will collapse will pay off after all…
Walmart is trying to solve its online problems with a $3.3 billion acquisition that can't be justified with any conventional financial analysis. Bloomberg looks at Facebook’s acquisitions for clues. Can overpaying be wise?

Driverless cars may not be a boon for our cities. They may cause more congestion, mass unemployment, and a huge infrastructure deficit.

llison Schrager on the diminishing returns of a college-educated workforce. “[G]iven the current state of technology and invested capital, turning the unskilled into skilled workers won’t do much for growth because the US economy already has all the educated workers it needs.” Read more here.

We find ourselves in the middle of one of the greatest sporting events on the planet the Rio Olympics. Is the gymnast Simone Biles really unbeatable? Quartz breaks down the physics behind her gymnastics.

All the best for a productive week,

Logos LP