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US Equity Valuations: Difference between revisions
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* 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 | * 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 environment. <ref>https://www.morganstanley.com/ideas/equity-risk-premium-low-q1-2023</ref> | ||
* Liz Young, SoFi Head of Investment Strategy (Jul 18, 2023): Stock prices have continued rising as yields have risen, those divergences do not last forever, and something has to happen to close that gap eventually. She thinks this relationship still matters, but that the economy may be different, less interest rate sensitive, and the AI enthusiasm has made the market not care about rates for now. <ref>https://www.youtube.com/watch?v=Dck1miwy2ug</ref> | * Liz Young, SoFi Head of Investment Strategy (Jul 18, 2023): Stock prices have continued rising as yields have risen, those divergences do not last forever, and something has to happen to close that gap eventually. She thinks this relationship still matters, but that the economy may be different, less interest rate sensitive, and the AI enthusiasm has made the market not care about rates for now. <ref>https://www.youtube.com/watch?v=Dck1miwy2ug</ref> | ||
* Jason Trennert, Strategas Research Partners chairman and CEO (Jul 27 2023): Even looking at the most optimistic estimates for earnings next year equity market doesn't look cheap. But markets can remain overbought longer than they stay oversold.Most value now is from sectors that have not participated in the rally so far. <ref>https://www.youtube.com/watch?v=HKjl9a4ZjJI</ref> | * Jason Trennert, Strategas Research Partners chairman and CEO (Jul 27 2023): Even looking at the most optimistic estimates for earnings next year equity market doesn't look cheap. But markets can remain overbought longer than they stay oversold.Most value now is from sectors that have not participated in the rally so far. <ref>https://www.youtube.com/watch?v=HKjl9a4ZjJI</ref> | ||
* Aswath Damodaran, professor of finance at NYU Stern School of Business (Aug 11 2023): Markets are overreach currently, but don't think will get to the 2022 lows. However, he admits markets tend to overshoot or undershoot in both directions. ERP has value in 5-10 years, but not way to know when the move will happen. <ref>https://www.youtube.com/watch?v=VPkQ7_3Sf1E</ref> | |||
* Bill Gross, Pimco co-founder (Oct 4 2023): Equity investors would need to justify entering the market without a risk premium by relying on potential increases in productivity and a stronger economy, he is not in this camp, and thinks PE ratios are coming down to increase the equity risks premium. He thinks inflation will settle higher than 2%, and 5% on 10 year treasury is still not great value due to the fiscal issues. <ref>https://www.youtube.com/watch?v=xAhvxjmqIfc&t=23s</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> | |||
* 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> | |||
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