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Where We Stand: Valuations

BELOW IS A LOOK at today’s market valuations:

  • At the end of 2018’s third quarter, the stocks in the S&P 500 were trading at a price-earnings ratio of 24.4, 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 2018’s third quarter at a cyclically adjusted price-earnings (CAPE) ratio of 33.8, versus a 50-year average of 20.1. CAPE compares current share prices to average inflation-adjusted earnings for the past 10 years.
  • Stocks, as of 2018’s second quarter, were trading at a 16.4% premium to the value of corporate assets, compared to an average discount of 31% 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 3.9% for U.K. shares, 2.8% for France, 2.9% for Canada, 2.8% for Germany and 2% for Japan, according to data for Sept. 29, 2018, 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 have had a rough time so far in 2018, as rising interest rates have driven down REIT prices. As of August 2018, equity REITs were yielding 3.9%, 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 3.06% at the end of 2018’s third quarter, while 10-year inflation-indexed Treasurys were yielding 0.96% more than inflation. The difference between those two yields suggests the financial markets expect inflation of 2.1% a year over the next decade.
  • At the end of 2018’s third quarter, high-yield junk bonds were yielding 3.2 percentage points more than Treasurys—well below the historical average.

Next: Asset No. 1: Stocks

Previous: Financial Markets

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