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 45.7, based on trailing 12-month reported earnings, making them very expensive by historical standards. Keep in mind that the market’s P/E has been driven higher by the hit to company profits that accompanied 2020’s economic turmoil. Corporate earnings should recover during 2021.
  • The S&P 500 stocks ended 2021’s second quarter at a cyclically adjusted price-earnings (CAPE) ratio of 38.1, versus a 50-year average of 20.8. CAPE compares current share prices to average inflation-adjusted earnings for the past 10 years.
  • As of 2021’s first quarter, stocks were at a 72% 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 fell hard during the early 2020 stock market selloff, but have since come roaring back, including strong gains in 2021. As of May, equity REITs were yielding 2.9%, the first sub-3% reading in the FTSE NAREIT index’s almost 50-year history.
  • The benchmark 10-year Treasury note was yielding 1.46% as of June 30, versus 0.92% at year-end 2020. 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 2021’s second quarter, high-yield junk bonds were yielding three percentage points more than Treasurys, down from 8.8 percentage points 15 months earlier, as worries about junk-bond defaults continue to ease.

Next: Asset No. 1: Stocks

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