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US Equity Valuations: Difference between revisions
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* Even if tech stocks, obviously generating excitement at present, are excluded, these measures suggest that stocks are historically expensive, at valuations comparable to the eve of the Great Crash in 1929 and of the GFC in 2007: | * Even if tech stocks, obviously generating excitement at present, are excluded, these measures suggest that stocks are historically expensive, at valuations comparable to the eve of the Great Crash in 1929 and of the GFC in 2007: | ||
* The all-time record for the Shiller P/E in 2000 was followed by a terrible decade; the 50-year low it touched in the early 1980s was the signal for a fantastic bull market | * The all-time record for the Shiller P/E in 2000 was followed by a terrible decade; the 50-year low it touched in the early 1980s was the signal for a fantastic bull market. It has good predictive power in a longer time frame. | ||
* A high Shiller P/E functions like a low implicit equity risk premium; it only makes sense if you think inflation will be tame, and hence bond yields can come down. | * A high Shiller P/E functions like a low implicit equity risk premium; it only makes sense if you think inflation will be tame, and hence bond yields can come down. | ||
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=== Ratio SP500 relative to Corporate Bonds === | === Ratio SP500 relative to Corporate Bonds === | ||
In August this year, the S&P 500 climbed to levels last seen during the peak of dot-com boom, relative to an index that tracks the US corporate bond market, according to data from global analytics platform Koyfin. The gauge is still holding near those highs, despite the recent pullback in equities.<ref>https://finance.yahoo.com/news/last-time-us-stocks-were-211718680.html</ref> | |||
* In August this year, the S&P 500 climbed to levels last seen during the peak of dot-com boom, relative to an index that tracks the US corporate bond market, according to data from global analytics platform Koyfin. The gauge is still holding near those highs, despite the recent pullback in equities.<ref>https://finance.yahoo.com/news/last-time-us-stocks-were-211718680.html</ref> | |||
[[File:Screenshot 2023-10-17 130200.png|center|thumb|876x876px|https://finance.yahoo.com/news/last-time-us-stocks-were-211718680.html]] | [[File:Screenshot 2023-10-17 130200.png|center|thumb|876x876px|https://finance.yahoo.com/news/last-time-us-stocks-were-211718680.html]] | ||
=== Ratio SP500 Yield relative to 10 year treasury yield === | === Ratio SP500 Yield relative to 10 year treasury yield === | ||
[[File:Screenshot 2023-10-17 131615.png|center|thumb|895x895px|https://twitter.com/Barchart/status/1713177839082627342/photo/1]] | [[File:Screenshot 2023-10-17 131615.png|center|thumb|895x895px|https://twitter.com/Barchart/status/1713177839082627342/photo/1]]Husman estimates that equities will lag bonds by more in coming 10-12 years than at any point in history aside from the period following the 2000 bubble peak. | ||
[[File:Screenshot 2023-10-18 110833.png|center|thumb|1098x1098px|https://twitter.com/hussmanjp/status/1709248732141609154/photo/1]] | |||
[[File:Screenshot 2023-10-17 151215.png|center|thumb|916x916px|https://twitter.com/KobeissiLetter/status/1711430546520191025/photo/1]] | [[File:Screenshot 2023-10-17 151215.png|center|thumb|916x916px|https://twitter.com/KobeissiLetter/status/1711430546520191025/photo/1]] | ||
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== Analyst Opinions == | == Analyst Opinions == | ||
Equities Unactractive: | |||
* Morgan Stanley (March 2023) : In fact, over the past two decades, this risk premium has sat between 300 and 350 basis points; currently it’s at 167. This isn’t much different from what an investor might expect to earn from investment-grade credit, which generally is considered less risky than stocks. Investors can perhaps afford to look past inflated valuations when economic fundamentals are hitting bottom, monetary policy is loosening and market expectations are low, we are not in such enviroment. <ref>https://www.morganstanley.com/ideas/equity-risk-premium-low-q1-2023</ref> | |||
* John Hussman (Oct 17 2023): Market valuations stand at one of the three great bubble extremes in US history, rivaling the peaks of 1929 and 2000. Those two previous periods of reckless speculation ended disastrously, and the current bubble is likely to unwind in similar fashion. That's not a forecast, but it certainly is a historically-consistent estimate of the potential downside risk created by more than a decade of Fed-induced yield-seeking speculation. Hussman noted the S&P 500 is priced today for a negative return over the next 10 to 12 years. The gap in expected returns between stocks and bonds is now among "the worst levels in history," and the gauge's total return is poised to lag Treasury bond returns by about 6.5% a year for the next decade. <ref>https://finance.yahoo.com/news/p-500-historic-bubble-could-192029487.html</ref> | |||
* Jeremy Grantham (October 5 2023): With are currently in the deflating part of the bubble from 2021, we will enter a deeply recession in the near term, and we are entering a new era of higher yields. Yields at current levels, it would be mathematically reasonable to think the US market as whole could fall by 50%, he contends. There’s trouble ahead if the “magnificent seven,” the few companies that have been carrying the index this year, lose any part of their magic.<ref>https://www.bloomberg.com/news/articles/2023-10-06/podcast-gmo-s-jeremy-grantham-says-no-one-should-invest-in-the-us</ref><ref>https://www.youtube.com/watch?v=-GlQk_FfD3Q</ref> | |||
* | |||
Equities still attractive: | |||
== References == | == References == | ||