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Are U.S. Stocks Cheap, Expensive, Or Fairly Valued?
I am always perplexed why reference is made to the P/E on prospective/future OPERATING earnings, and then attempt to compare/contrast that to historical P/E ranges --- when that latter is NOT based on operating earnings, but on net, bottom-line GAAP results. Its like comparing apples to oranges.
My latest Barrons, indicates the S&P is currently trading at a 25 X multiple of TTM GAAP earnings. So US stocks are aberationally expensive vs. historical valuations.
That said, if: a)Money is fleeing bonds, AND b) Euro-headline risk (exit votes, etc.) and lousy growth continue, AND c) Money continues to stay away from EM markets, AND d)A tax-incentive is inacted to repatriate overseas corporate cash AND e) Lowered corporate tax rates are enacted, leaving more money for shareholders...
@Edmond, Totally agree with your assessment. Equities over FI. Domestic equities over Foreign/EM equities. SC/MC domestic equities over LC equities. The domestic equity indices are going higher.
I like what both Edmond and kevindow have written above and, for me, it makes sense. My portfolio has been valuation flat since election time mostly due to my sector orientation. And, I agree that by historical standards the S&P 500 Index is more expensive today over it's historical standard.
Below is my SWAG (Scientific Wild Ass Guess) Forecast ... and, what I am doing.
One of the things I have done to help me find value is to use a blended approach to valuation. I combine the TTM P/E Ratio and the Forward Estimate P/E Ratio and divide by two and then apply the Rule of Twenty as being plenty. This takes into account what stocks have done over the past twelve months plus allows for their outlook.
With this, I have determined, by my measuring stick, that the Index is presently, as of Friday's market close, overvalued by about six percent. In review of some S&P earnings data, earnings are project to grow by about 13% for the Index over the next six months. Fundamentally this is indeed bullish.
By applying my forecast in earnings against todays valuation, the Index is currently selling at somewhat its fair value looking out six months ... I plan no major allocation adjustments based upon this outlook.
Still, with the favorable comments from Edmond & kevindow, I am not backing the truck up either and loading equities as my Portfolio Equity Weighting Matrix Barometer calls for a weighting of 50% in stocks in today's market spectrum. My November Instant Xray analysis reflects a 50% position in stocks and this is about where I should be positioned based upon my risk tolerance and need analysis.
With anticipated yearend capital gains distributions usualy paid in December, I estimate I'll need to do a little equity buying come January to restore the current 50% bubble. Since, I am positioned about where I need to be I plan no changes within my portfolio until January arrives.
@kevindow, I agree and (of course) also hope you are right. DSEEX ytd has >doubled SP500, and I do not know whether to stick with it and its successful algorithmic LCV quasi-churn. Am inclined to stick.
I suppose it is possible that Gund's secret bond sauce may suffer and the fund may just track CAPE. Not sure.
But while it did slump last Jan, like everything else (still less than SP500), it was flat prior, through the last rate mini-hike, from mid-Oct '15 onward until last early Jan slump.
Still outperformed SP500 at every interval.
So it may be largely unreactive.
I am wondering how PONDX will do. But then I trust that smarties like Gundlach and Ivascyn know what they are doing and that this next hike is baked in or planned for....
@Sven, I think domestic equities will likely have a dip at the inauguration, which should be bought. Then hang on through the April or May. The market should be choppy through the summer, and then head up in the fall of 2017. I am bullish on domestic SC/MC equities for the next 3 years, and have 100% of my TSP in the S fund (VXF equivalent).
@davidrmoran, I am comfortable in the process involved with DSEEX, and we continue to have 15% of our portfolio invested in this fund. And JG will likely not allow the FI portion of this fund be a drag on performance, so I am fine with holding this fund in a rising interest rate environment. And if the equity exposure hits a downdraft, the FI portion will be beneficial.
Comments
My latest Barrons, indicates the S&P is currently trading at a 25 X multiple of TTM GAAP earnings. So US stocks are aberationally expensive vs. historical valuations.
That said, if:
a)Money is fleeing bonds, AND
b) Euro-headline risk (exit votes, etc.) and lousy growth continue, AND
c) Money continues to stay away from EM markets, AND
d)A tax-incentive is inacted to repatriate overseas corporate cash AND
e) Lowered corporate tax rates are enacted, leaving more money for shareholders...
Well, stocks can go higher!
Kevin
I like what both Edmond and kevindow have written above and, for me, it makes sense. My portfolio has been valuation flat since election time mostly due to my sector orientation. And, I agree that by historical standards the S&P 500 Index is more expensive today over it's historical standard.
Below is my SWAG (Scientific Wild Ass Guess) Forecast ... and, what I am doing.
One of the things I have done to help me find value is to use a blended approach to valuation. I combine the TTM P/E Ratio and the Forward Estimate P/E Ratio and divide by two and then apply the Rule of Twenty as being plenty. This takes into account what stocks have done over the past twelve months plus allows for their outlook.
With this, I have determined, by my measuring stick, that the Index is presently, as of Friday's market close, overvalued by about six percent. In review of some S&P earnings data, earnings are project to grow by about 13% for the Index over the next six months. Fundamentally this is indeed bullish.
By applying my forecast in earnings against todays valuation, the Index is currently selling at somewhat its fair value looking out six months ... I plan no major allocation adjustments based upon this outlook.
Still, with the favorable comments from Edmond & kevindow, I am not backing the truck up either and loading equities as my Portfolio Equity Weighting Matrix Barometer calls for a weighting of 50% in stocks in today's market spectrum. My November Instant Xray analysis reflects a 50% position in stocks and this is about where I should be positioned based upon my risk tolerance and need analysis.
With anticipated yearend capital gains distributions usualy paid in December, I estimate I'll need to do a little equity buying come January to restore the current 50% bubble. Since, I am positioned about where I need to be I plan no changes within my portfolio until January arrives.
I wish all ... "Good Investing."
Skeet
@davidrmoran, Fed will raise rate in December, how will DSEEX do?
But while it did slump last Jan, like everything else (still less than SP500), it was flat prior, through the last rate mini-hike, from mid-Oct '15 onward until last early Jan slump.
Still outperformed SP500 at every interval.
So it may be largely unreactive.
I am wondering how PONDX will do. But then I trust that smarties like Gundlach and Ivascyn know what they are doing and that this next hike is baked in or planned for....
@davidrmoran, I am comfortable in the process involved with DSEEX, and we continue to have 15% of our portfolio invested in this fund. And JG will likely not allow the FI portion of this fund be a drag on performance, so I am fine with holding this fund in a rising interest rate environment. And if the equity exposure hits a downdraft, the FI portion will be beneficial.
Kevin
If only it worked like that, as a matter of effort.
Yes, I trust his navigational skill. 53% in DSEEX / DSENX alone.