God knows there’s been no shortage of coverage regarding the extent to which US stocks are expensive versus history when it comes to just how much investors are willing to pay for a dollar of (financial-engineered) earnings.
More simply: people love to look at P/E ratios and any derivative chart thereof for clues as to just how crazy anyone buying now truly is.
Well, as it turns out, stocks are expensive on almost any metric you care to consult as we hilariously outlined in “Keepin’ It 100% Real In These Markets.”
Along these same lines, consider the following from SocGen and then file it away in the “this is how stupid investors are” folder – which should be pretty full by now.
While US earnings have recently bottomed out after two years of contraction, the forward P/E ratio chart (below left) indicates that the S&P 500 is currently trading at 17.9x, close to the all-time high. If we look at a ratio that is more stable over time – the Price to 12-month forward Sales Per Share – we find that the S&P 500 is trading at 1.9x, which represents a 37% premium to its 12Y average.