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Today’s Valuations

BELOW IS a look at current market valuations:

  • At year-end 2019, the stocks in the S&P 500 were trading at a price-earnings ratio of 24.3, 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 WSJ.com.
  • The S&P 500 stocks ended 2019 at a cyclically adjusted price-earnings (CAPE) ratio of 31.3, versus a 50-year average of 20.3. CAPE compares current share prices to average inflation-adjusted earnings for the past 10 years.
  • As of 2019’s third quarter, stocks were trading at a 78% premium to the value of corporate assets. This measure of stock market value is known as Tobin’s Q.
  • U.S. stocks offer a dividend yield of 1.8%, versus 4.5% for U.K. shares, 2.9% for Canada, 2.8% for Germany and France, and 2.3% for Japan, according to data for Nov. 29, 2019, 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 strong returns in 2019, as falling interest rates drove up REIT prices. As of November 2019, equity REITs were yielding 3.6%, 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 1.92% at the end of December 2019. Based on the difference between that yield and the yield on inflation-indexed Treasurys, the financial markets expect inflation of around 1.8% a year over the next decade.
  • At year-end 2019, high-yield junk bonds were yielding 3.6 percentage points more than Treasurys, down from 5.3 percentage points at year-end 2018. The spread over Treasurys widened in late 2018, as investors confronted the possibility of an economic slowdown, but that reversed in 2019.

Next: Asset No. 1: Stocks

Previous: Financial Markets

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