The S&P 500 trades at an elevated valuation on almost every metric. The forward P/E multiple of the S&P 500 has risen by 80% since 2011 (to 18x) and now trades at the 89th percentile compared with the past 40 years while the typical stock is at the 99th percentile of historical valuation.
That’s from Goldman and it serves as a nice intro to what’s become something of a tradition here at HR: a periodic public service announcement about what it is exactly that you are buying into if you’re getting long US equities at these levels.
These quick, chart-heavy posts are a nice break from some of our more esoteric pieces.
And in that respect, they are a good reminder that although we love diving deep into the weeds in search of market anomalies and other interesting discrepancies you might not find anywhere else, sometimes it’s good to just step back and look at the simplest, idiot-proof metrics to get a read on things.
Without further ado.
**********
Valuations are absurd (indeed, almost unprecedented) versus history…
Tantrum risk (i.e. the possibility that the stock-bond return correlation will flip positive on a rates shock) is ever-present…
The trend in global earnings revisions is looking better, but…
… less so in the US…
European stocks might be refuge as it looks like the underperformance tide may be turning but….
…don’t forget about the FX headwind…
If you’re a Shiller disciple, well then this looks really, really precarious…
Because look what usually happens in terms of subsequent returns from these levels…
Finally, the PB gap between US equities and global peers is, well, notable…
[Charts: Goldman]
Hi, Heis, Herewith is my long-range (10 year) outlook for the market (I spent a lot of time researching this):
https://davidlcoxdotme1.wordpress.com/2017/07/03/2836/