Today’s Valuations

BELOW IS A LOOK at current market valuations:

  • As of March 31, the stocks in the S&P 500 were trading at a price-earnings (P/E) ratio of more than 40, based on trailing 12-month reported earnings, making them very expensive by historical standards. Keep in mind that the market’s P/E is being driven higher as corporate profits take a hit amid the current economic turmoil.
  • The S&P 500 stocks ended 2021’s first quarter at a cyclically adjusted price-earnings (CAPE) ratio of 35.7, versus a 50-year average of 20.7. CAPE compares current share prices to average inflation-adjusted earnings for the past 10 years.
  • As of 2020’s fourth quarter, stocks were at a 164% 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 fell hard during the early 2020 stock market selloff, but have recovered since. As of February, equity REITs were yielding 3.5%, below the 10.1% peak hit in February 2009, but above the 3.1% low of April 2013.
  • The benchmark 10-year Treasury note was yielding 1.74% as of March 31, versus 0.92% at year-end 2020. Based on the difference between that yield and the yield on inflation-indexed Treasurys, the financial markets expect inflation of almost 2.4% a year over the next decade.
  • At the end of 2021’s first quarter, high-yield junk bonds were yielding 3.4 percentage points more than Treasurys, down from 8.8 percentage points 12 months earlier, as worries about junk-bond defaults continue to ease.

Next: Asset No. 1: Stocks

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