U.S. stocks are expensive no matter how you slice is, says Oxford Economics, and could “come under pressure as geopolitical tensions escalate.” This according to a recent article in Bloomberg. “American shares are as much as 16% overvalued at present levels, and a short position on the S&P 500 Index looks increasingly favorable,” said strategist Daniel Grosvenor in recent report, adding that low bond yields are not sufficient to bolster equity prices. He wrote, “The… Read More
Ben Inker, GMO’s head of asset allocation for over two decades, says that the recent stock market rally has priced in an “an optimistic resolution to the coronavirus crisis, while leaving investors in a dangerous position if something goes wrong.” This according to a recent article in Barron’s. According to Inker, the current economic downturn will be “twice as deep as the 3.25% gross-domestic-product hit the U.S. suffered in the financial crisis.” Here are some… Read More
Miller Value Partners founder Bill Miller does not see the market as overvalued, according to a recent CNBC article. “If you look at the overall market,” Miller said, “we’re trading at around 17 times the consensus on bottom-up earnings for 2021, which is about the average for the last five years. It might be a little extended given we’ve got a chasm of bad news to go over here, but I don’t find it as… Read More
By Jack Forehand, CFA There is perhaps no piece of information that is more misused in equity investing than the valuation of the market. Whether someone has an agenda to show that the market is expensive, or that it is cheap, it is usually very easy to find data or a chart to prove their point. Even for those who don’t have an agenda, it can be very easy to fall into the trap of misusing… Read More
Bloomberg Opinion: This is Looking More Like a Financial Crisis A recent article in Bloomberg argues that the current situation resembles the start of a financial crisis: “Businesses and banks are scrambling for cash, and investors are dumping their winners to cover their losses. It all has that very fall-of-2008 feel.” The article offers the following insights: Junk bonds had held appeal for yield-hungry investors who thought that a “reckoning would be far away. Well,… Read More
In a recent Bloomberg article, columnist Nir Kaissar asserts that the U.S. stock market is not yet offering the “historic buying opportunity some investors have been waiting for.” In response to whether now is a good time to shop for bargains in the U.S. equities market, Kaissar writes, “the short answer is no, even after all the recent turbulence.” He notes that the price-to earnings ratio—which Wall Street favors as a stock market barometer– is… Read More
By Jack Forehand (@practicalquant) — When it comes to market valuation, investors love certainty. They want to hear definitively that the market is cheap, or the market is expensive, and that they can use that information to predict where it is headed in the short-term. As a result, strategists that make these type of market calls (particularly the ones who do so on the negative side), can generate significant headlines and attention for themselves. None of… Read More
A recent Barron’s article shares an interview with Evercore Wealth Management’s chief investment officer John Apruzzese, who believes that the market is reasonably valued. He bases his view on the market’s real earnings yield—trailing 12-month inflation-adjusted earnings divided by price—instead of the more widely used price-earnings ratio. According to Ed Yardeni of Yardeni Associates, Apruzzese’s use of real earnings yield makes sense and “has a good track record.” Barron’s talked to Apruzzese about the implications… Read More
By Jack Forehand (@practicalquant) — The consensus opinion among followers of the market has been pretty consistent for some time now. The general belief is that the stock market is trading at one of the highest valuations it ever has, and that those lofty valuations bode very poorly for the future. I understand the narrative very well because I have been one of the people saying it. The data also backs it up. Market valuations tell… Read More
In a paper published earlier this month, GMO’s James Montier argues that the stock market is in the grip of a “cynical bubble,” according to an article in Bloomberg. Montier doesn’t share the optimism of his colleague, Jeremy Grantham, who recently expressed his view that the market could be headed for a late bubble “melt-up” the article says. In the paper, Montier writes, “Those buying the asset in question don’t really believe they are buying… Read More