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Today’s Valuations

BELOW IS a look at current market valuations:

  • At the end of 2018, the stocks in the S&P 500 were trading at a price-earnings ratio of 19.6, based on trailing 12-month reported earnings, making them expensive by historical standards. To view the S&P 500’s price-earnings multiple, and also its dividend yield, head to WSJmarkets.com.
  • The S&P 500 stocks ended 2018 at a cyclically adjusted price-earnings (CAPE) ratio of 27.9, versus a 50-year average of 20.1. CAPE compares current share prices to average inflation-adjusted earnings for the past 10 years.
  • As of 2018’s fourth quarter, stocks were trading at a 4.5% premium to the value of corporate assets, compared to an average discount of 30% since 1900. This measure of stock market value is known as Tobin’s Q.
  • U.S. stocks offer a dividend yield of 2.1%, versus 4.5% for U.K. shares, 3.3% for France, 3.3% for Canada, 3.2% for Germany and 2.5% for Japan, according to data for Dec. 31, 2018, from StarCapital.de. Using a variety of market yardsticks, the site ranks the U.S. market among the world’s most expensive.
  • U.S. equity real estate investment trusts had a rough time early in 2018, as rising interest rates drove down REIT prices, but held up moderately well during the stock market’s fourth-quarter decline. As of December 2018, equity REITs were yielding 4.4%, below the 10.1% peak hit in February 2009, but above the 3.1% low of April 2013.
  • The benchmark 10-year Treasury note was yielding 2.68% at year-end 2018, while 10-year inflation-indexed Treasurys were yielding 1.03% more than inflation. The difference between those two yields suggests the financial markets expect inflation of around 1.7% a year over the next decade.
  • At the end of 2018, high-yield junk bonds were yielding 5.3 percentage points more than Treasurys—close to the historical average. The spread over Treasurys widened in late 2018, as investors confronted the possibility of an economic slowdown.

Next: Asset No. 1: Stocks

Previous: Financial Markets

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