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Today’s Valuations

BELOW IS A LOOK at current stock and bond market valuations:

  • At the end of 2024’s first quarter, the stocks in the S&P 500 were trading at a price-earnings ratio of 28.5, based on trailing 12-month reported earnings, making them overpriced by historical standards.
  • The S&P 500 stocks ended the first quarter at a cyclically adjusted price-earnings (CAPE) ratio of 35.1, versus a 50-year average of 21.5. CAPE compares current share prices to average inflation-adjusted earnings for the past 10 years.
  • As of year-end 2023, U.S. stocks were at a 33% 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 tumbled in 2022 but partly rebounded in 2023. As of February 2024, equity REITs were yielding 4%, above the 2.6% recorded in December 2021, which was the lowest yield in the FTSE NAREIT index’s half-century history.
  • The benchmark 10-year Treasury note was yielding 4.21% at the end of 2024’s first quarter, up from 3.88% at year-end 2023. 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 2024’s first quarter, high-yield junk bonds were yielding 3.1 percentage points more than Treasurys, almost unchanged from three months earlier.

Next: Asset No. 1: Stocks

Previous: Financial Markets

Articles: Yardsticks for Stocks and Signal Failure

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