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Stocks Still Don't Look Very Expensive

TedTed
in Fund Discussions
FYI: I recently argued that today’s stock market is not at all like the 1997-2001 dot-com bubble and that, in fact, the simple benchmark developed by John Burr Williams, the original value investor, indicates that investors can anticipate a long-term return on the S&P 500 that will be well above the return on Treasury bonds. Today, I look at another investment benchmark that suggests that stocks are not at all bubbly.
Regards,
Ted
http://www.realclearmarkets.com/articles/2017/07/06/stocks_still_dont_look_very_expensive__102761.html

Comments

  • LewisBraham
    edited July 2017
    Why should the earnings yield on stocks be anywhere remotely close to interest rates on bonds when bond rates are contractually guaranteed by law for years in advance while stock earnings can fluctuate wildly from quarter to quarter? Should not the earnings yield on stocks be significantly higher than bond rates to justify the additional risk of owning stocks--the so-called equity risk premium? Moreover, there is no certainty that solid stock earnings now will ever be paid out to shareholders in the form of dividends or reinvested wisely to facilitate future growth. The Berkshire Hathaway example of it not paying dividends in the story is the exception that proves the rule. Few CEOs reinvest in their businesses as wisely as Warren Buffett has.
  • randynevinrandynevin
    It may not be like the dotcom bubble, but with s&p500 p/e ratio between 25 and 26, doesn't look like bargains to me.
  • Edmond
    edited July 2017
    "Not as expensive as 97-2000" doesn't mean its not overvalued -- just that it is not AS overvalued...

    Ed Yardeni's current weekly publication deals exactly with the topic:

    https://www.yardeni.com/pub/stockmktperatio.pdf

    And yes, the market is NOT as expensive as 97-2000. What relevance is that, exactly? Is there some implicit expectation that the next stock market top MUST get as expensive as the dot-com peak? The market is not going to guarantee a Dot-com valuation for folks.

    Trailing P/Es of 25-26 is an expensive market. That statement is simply declarative; its not meant to be predictive. Stock valuations may be at a "permanently high plateau" (like they were in the late 1920's (said tongue in cheek). In the immediate future, they may stay expensive or get more expensive (NOT a prediction!). But those possibilities don't obviate that they are expensive NOW.

    I think of it this way: If I am buying (or holding) an expensive asset, what are my future returns likely to be? (Past returns, good or bad, are already "in the bag", and so, are moot.)
  • AndyJ
    Good chart pack from the Yardeni camp; hardly ever see PEG ratios referred to anymore.
  • ShostakovichShostakovich
    @Edmund: but doesn't everything look expensive; and isn't the stock-bull case that stocks are the nicest house on a shabby street? Where would you put money to work right now? My personal bet would be international and global bonds. But who the hell knows.

    This market is not right.
  • Sven
    It is all quite on the Western front...something big happens. After the G-20 meeting, I have even less confident that conflicts will be resolved diplomacy and the markets will react accordingly.
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