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Tuesday, August 11, 2020 4:04:29 PM
In a world of zero interest rates, what is the fair value of the S&P 500 forward P/E? Investors can get killed if the current valuation multiple of 22.1 on the S&P 500 is too high and headed lower
By: Yardeni Research | August 10, 2020
• In a world of zero interest rates, what is the fair value of the S&P 500 forward P/E? Investors can get killed if the current valuation multiple of 22.1 on the S&P 500 is too high and headed lower. Alternatively, investors who cash out of equities now because they deem stocks to be too expensive could turn suicidal if stock prices continue to soar along with their P/Es.
With bond yields near zero, the notion that there is no alternative (TINA) to stocks makes more sense than ever before. While the current P/E undoubtedly will revert to the mean eventually, that might not be a very useful insight if the mean has moved higher when adjusted for record-low bond yields.
In other words, might the new normal mean P/E be higher than the current reading of 22.1 rather than lower and closer to the old normal’s 15.0 average?
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By: Yardeni Research | August 10, 2020
• In a world of zero interest rates, what is the fair value of the S&P 500 forward P/E? Investors can get killed if the current valuation multiple of 22.1 on the S&P 500 is too high and headed lower. Alternatively, investors who cash out of equities now because they deem stocks to be too expensive could turn suicidal if stock prices continue to soar along with their P/Es.
With bond yields near zero, the notion that there is no alternative (TINA) to stocks makes more sense than ever before. While the current P/E undoubtedly will revert to the mean eventually, that might not be a very useful insight if the mean has moved higher when adjusted for record-low bond yields.
In other words, might the new normal mean P/E be higher than the current reading of 22.1 rather than lower and closer to the old normal’s 15.0 average?
Read Full Story »»»
DiscoverGold
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