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Today’s Valuations

BELOW IS A LOOK at current market valuations:

  • As of June 30, the stocks in the S&P 500 were trading at a price-earnings (P/E) ratio of 26.7, based on trailing 12-month reported earnings through 2020’s first quarter, making them expensive by historical standards. Keep in mind that the market’s P/E is being driven higher, as corporate profits take a hit amid this year’s economic slowdown.
  • The S&P 500 stocks ended 2020’s second quarter at a cyclically adjusted price-earnings (CAPE) ratio of 29.1, 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 2020’s first quarter, and thus before the rally of the the second quarter, stocks were trading at a 51.8% 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 1.9%, versus 4.3% for U.K. shares, 3.3% for Canada, 2.7% for Germany, and 2.5% for France and Japan, according to data for May 29 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 fell hard during the stock market selloff of February and March, but have recovered somewhat since then. As of May, equity REITs were yielding 4.2%, 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 0.66% as of June 30, versus 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 1.3% a year over the next decade.
  • As of late June, high-yield junk bonds were yielding 6.5 percentage points more than Treasurys, down from 9.2 percentage points three months earlier, as worries about junk-bond defaults eased somewhat.

Next: Asset No. 1: Stocks

Previous: Financial Markets

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