Today’s Valuations

BELOW IS A LOOK at current market valuations:

• At year-end 2022, the stocks in the S&P 500 were trading at a price-earnings (P/E) ratio of 20, based on trailing 12-month reported earnings, making them reasonably priced by historical standards. The market’s P/E had been driven higher by the hit to company profits that accompanied 2020’s economic turmoil. But as corporate earnings have recovered, and further helped by 2022’s slumping share prices, the market’s P/E ratio has come down.
• The S&P 500 stocks ended the fourth quarter at a cyclically adjusted price-earnings (CAPE) ratio of 28.1, versus a 50-year average of 21.3. CAPE compares current share prices to average inflation-adjusted earnings for the past 10 years.
• As of 2022’s third quarter, stocks were at a 24% premium to the value of corporate assets. This measure of stock market value is known as Tobin’s Q.
• U.S. equity real estate investment trusts posted strong gains in 2021, but tumbled in 2022. As of December 2022, equity REITs were yielding 4%, above the 2.6% recorded in December 2021, which was the lowest yield in the FTSE NAREIT index’s 50-year history.
• The benchmark 10-year Treasury note was yielding 3.88% at year-end 2022, versus 1.51% at year-end 2021. Based on the difference between that yield and the yield on inflation-indexed Treasurys, the financial markets expect inflation of 2.3% a year over the next decade.
• At the end of 2022, high-yield junk bonds were yielding 4.8 percentage points more than Treasurys, up from 3.1 percentage points at year-end 2021.

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