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Today’s Valuations

BELOW IS A LOOK at current market valuations:

  • At the end of 2022’s first quarter, the stocks in the S&P 500 were trading at a price-earnings (P/E) ratio of 26, based on trailing 12-month reported earnings, making them expensive by historical standards. The market’s P/E had been driven higher by the hit to company profits that accompanied 2020’s economic turmoil. But as corporate earnings have recovered, the market’s P/E ratio has come down.
  • The S&P 500 stocks ended the first quarter at a cyclically adjusted price-earnings (CAPE) ratio of 37, versus a 50-year average of 20.9. CAPE compares current share prices to average inflation-adjusted earnings for the past 10 years.
  • As of 2021’s fourth quarter, stocks were at a 76% 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 posted strong gains in 2021, but slipped modestly during 2022’s first quarter. As of February, equity REITs were yielding 2.9%, close to the lowest yield in the FTSE NAREIT index’s 50-year history.
  • The benchmark 10-year Treasury note was yielding 2.34% as of March 31, versus 1.51% at year-end 2021. Based on the difference between that yield and the yield on inflation-indexed Treasurys, the financial markets expect inflation of 2.9% a year over the next decade.
  • At the end of 2022’s first quarter, high-yield junk bonds were yielding 3.3 percentage points more than Treasurys, down from 8.8 percentage points two years earlier, when the pandemic’s economic shutdown threatened a wave of bond defaults.

Next: Asset No. 1: Stocks

Previous: Financial Markets

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