Planning Briefs
Poor Bond Outlook May Herald A New Stock Valuation Regime
Published Wednesday, Sept. 9, 2020; 3:30 PM EST
(Wednesday, Sept. 9, 2020; 3:30 PM EST) With a 10-Year Treasury bond currently yielding a paltry 0.6%, and Federal Reserve chief Jerome Powell saying the central bank is "not even thinking about thinking about raising rates," investors could be at the dawn of a new era of expanded stock multiples.
The solid red lines in the accompanying chart illustrate the historical p-e ratio of 16 and 19 and the black line shows the actual S&P 500 index. The dotted red lines on the right side of the chart illustrate the valuation band through the end of 2021, based on projections from Wall Street analysts and collected by Institutional Brokers' Estimate System (IBES), a Thomson Reuters company. With the S&P 500 current p-e multiple at 20.6, the price of the S&P 500 in the black line is way above the upper end of the valuation band of 19. This indicates a new era of higher valuations on stocks be dawning. The sources of the data are Yardeni Research, Inc. and Thomson Reuters I/B/E/S for actual and estimated operating earnings from 2015; Standard and Poor's Corp. for actual operating earnings data through 2014 and stock index price data through September 4, 2020. The actual earnings in 2019 were $162.97. Estimated earnings for 2020 are $130.13 and $166.43 in 2021.
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