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Today’s Valuations

BELOW IS a look at current market valuations:

  • At the end of 2019’s second quarter, the stocks in the S&P 500 were trading at a price-earnings ratio of 22.8, 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 2019’s second quarter at a cyclically adjusted price-earnings (CAPE) ratio of 30.6, versus a 50-year average of 20.2. CAPE compares current share prices to average inflation-adjusted earnings for the past 10 years.
  • As of 2019’s first quarter, stocks were trading at a 14.2% 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 1.8%, versus 4.3% for U.K. shares, 2.9% for Germany and Canada, 2.8% for France and 2.4% for Japan, according to data for April 30, 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’s first half, as falling interest rates drove up REIT prices. As of May 2019, equity REITs were yielding 3.7%, 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 2.01% at the end of June 2019, while 10-year inflation-indexed Treasurys were yielding 0.34 percentage point 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 2019’s second quarter, high-yield junk bonds were yielding 4.1 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’s initial months.

Next: Asset No. 1: Stocks

Previous: Financial Markets

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