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Today’s Valuations

BELOW IS a look at current market valuations:

  • At the end of 2019’s first quarter, the stocks in the S&P 500 were trading at a price-earnings ratio of 21.4, 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 first quarter at a cyclically adjusted price-earnings (CAPE) ratio of 30.8, 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 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 1.9%, versus 4.4% for U.K. shares, 3% for France, Canada and Germany, and 2.3% for Japan, according to data for Feb. 28, 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 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 March 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 2.41% at the end of March 2019, while 10-year inflation-indexed Treasurys were yielding 0.57 percentage point more than inflation. The difference between those two yields suggests the financial markets expect inflation of around 1.8% a year over the next decade.
  • At the end of 2019’s first quarter, high-yield junk bonds were yielding 4 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 first three months.

Next: Asset No. 1: Stocks

Previous: Financial Markets

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