Market Briefing: Stock Market Valuation Metrics & Models

Transcription

1 Market Briefing: Stock Market Valuation Metrics & Models July, 1 Dr. Edward Yardeni eyardeni@ Joe Abbott jabbott@ Mali Quintana aquintana@ Please visit our sites at www. blog. thinking outside the box

2 Table Of Contents Table Of Contents Forward P/E Ratios 1 Bulls & Bears Rules of 3- Valuation Models S&P Index & Forward Earnings -7 S&P LTEG vs. Corporate Bond Yield -9 S&P P/E & Misery Index July, 1 / Stock Market Valuation Metrics & Models www.

3 Forward P/E Ratios Figure 1. FORWARD P/E RATIO FOR S&P * (monthly) Carter Reagan Bush I Clinton Bush II Obama Average = * Average weekly price divided by -week forward consensus expected operating earnings per share. Source: Thomson Reuters I/B/E/S. 7 Figure. FORWARD PE RATIO FOR S&P vs. MISERY INDEX Misery Index* S&P Forward P/E** May 7 * Yearly percent change in core personal consumption expenditures deflator plus unemployment rate. ** Price divided by -month forward consensus expected operating earnings per share. Source: US Department of Commerce, Bureau of Economic Analysis and US Department of Labor, Bureau of Labor Statistics, and Thomson Reuters I/B/E/S. Page 1 / July, 1 / Stock Market Valuation Metrics & Models www.

4 Figure 3. Bulls & Bears S&P FORWARD P/E & INVESTORS INTELLIGENCE BULL/BEAR RATIO 3 S&P Forward P/E* (1.) Investors Intelligence Bull/Bear Ratio (1.9) 3 7/ * Average weekly price divided by -week forward consensus expected operating earnings per share. Monthly through April 199, then weekly. Source: Standard & Poor s Corporation, Thomson Reuters I/B/E/S, and Investors Intelligence Figure. S&P FORWARD P/E & CONSUMER COMFORT INDEX S&P Forward P/E* (1.) Consumer Comfort Index** (3.) 3 7/ * Average weekly price divided by -week forward consensus expected operating earnings per share. ** Index plus Source: Standard & Poor s Corporation, Thomson Reuters I/B/E/S, and BloombergBusiness. Page / July, 1 / Stock Market Valuation Metrics & Models www.

5 3 Figure. Rules of S&P FORWARD P/E & RULE OF P/E BASED ON CPI INFLATION RATE (monthly) 3 S&P Forward P/E* (1.) minus CPI Inflation Rate (yearly percent change) (19.) May * P/E = price-to-earnings ratio using mid-month price and -month forward consensus earnings expectations. Source: Thomson Reuters I/B/E/S and Bureau of Labor Statistics. Figure. S&P FORWARD P/E & RULE OF P/E BASED ON CPI INFLATION RATE minus Consumer Price Index (yearly percent change) Minus S&P P/E May * P/E = price-to-earnings ratio using mid-month price and -month forward consensus earnings expectations. Source: Thomson Reuters I/B/E/S and Bureau of Labor Statistics. Page 3 / July, 1 / Stock Market Valuation Metrics & Models www.

6 Figure 7. Rules of S&P FORWARD P/E & P/E BASED ON RULE OF USING -YEAR TREASURY YIELD (weekly) S&P Forward P/E* (1.) minus Ten-Year Treasury Yield (1.) * Price divided by -week forward consensus expected operating earnings per share. Source: Thomson Reuters I/B/E/S and Federal Reserve Board. Figure. S&P ACTUAL & THEORETICAL USING FORWARD EARNINGS & RULE OF P/E BASED ON BOND YIELD 1 S&P Forward Earnings Times minus -Year Treasury Yield (3.9) S&P Index (9.9) 7/ Source: Thomson Reuters I/B/E/S and Federal Reserve Board. Page / July, 1 / Stock Market Valuation Metrics & Models www.

7 Figure 9. S&P INDEX Valuation Models P/E* (1.) LTEG** (11.) PEG*** (1.) * P/E = price-to-earnings ratio using mid-month price and -month forward consensus earnings expectations. ** LTEG = consensus median -year expected earnings growth. *** PEG = P/E divided by LTEG. Source: Thomson Reuters I/B/E/S.. Figure. TOBIN S Q FOR NONFINANCIAL CORPORATIONS* (ratio) Actual Q (.97) Adjusted Q** (1.37) Q * Ratio of the market value of equities to the net worth of the corporations including real estate and structures at market value and equipment, software, and inventories at replacement cost. ** Actual divided by average since 19. Source: Federal Reserve Board Flow of Funds Accounts. Page / July, 1 / Stock Market Valuation Metrics & Models www.

8 Figure 11. S&P Index & Forward Earnings S&P COMPOSITE vs. S&P BOTTOM UP FORWARD OPERATING EARNINGS EPS (weekly data Indexed to week of March 9, 9) S&P Index Forward Earnings Source: Standard & Poor s Corporation and Thomson Reuters I/B/E/S. 7/ / Figure. S&P COMPOSITE vs. S&P BOTTOM UP FORWARD OPERATING EARNINGS EPS (indexed to Sept 197) S&P Index Forward Earnings Source: Standard & Poor s Corporation and Thomson Reuters I/B/E/S Page / July, 1 / Stock Market Valuation Metrics & Models www.

9 S&P Index & Forward Earnings Figure 13. S&P COMPOSITE vs. S&P BOTTOM UP FORWARD OPERATING EARNINGS EPS (weekly data Indexed to month end March 199) 7/ S&P Index Forward Earnings / Source: Thomson Reuters I/B/E/S. Page 7 / July, 1 / Stock Market Valuation Metrics & Models www.

10 3 Figure. S&P LTEG vs. Corporate Bond Yield S&P FORWARD P/E 3 S&P Forward P/E (1.3) S&P LTEG* minus Moody s Seasoned Aaa Corporate Bond Yield x (1.9) / * LTEG: -year forward consensus expected earnings growth. Monthly data through, weekly thereafter. Source: Thomson Reuters I/B/E/S and Federal Reserve Board. 1 Figure. S&P LTEG & CORPORATE BOND YIELD (percent) 1 1 S&P LTEG* (11.9) Moody s Seasoned Aaa Corporate Bond Yield (3.) 1 / * LTEG: -year forward consensus expected earnings growth. Monthly data through, weekly thereafter. Source: Thomson Reuters I/B/E/S and Federal Reserve Board. Page / July, 1 / Stock Market Valuation Metrics & Models www.

11 S&P LTEG vs. Corporate Bond Yield Figure 1. S&P FORWARD EARNINGS YIELD & CORPORATE BOND YIELD S&P Forward Earnings Yield* (.) Moody s Seasoned Aaa Corporate Bond Yield (3.) * Forward earnings (time-weighted average of consensus operating earnings estimates for current and next year) divided by S&P index. Monthly through April 199, weekly after. Source: Thomson Reuters I/B/E/S and Board of Governors of the Federal Reserve System. Page 9 / July, 1 / Stock Market Valuation Metrics & Models www.

12 3 Figure 17. S&P P/E & Misery Index S&P FORWARD P/E* PLUS MISERY INDEX** May Note: Bear markets are declines of % or more (in red shades) * Price divided by -month forward consensus expected operating earnings per share. ** Yearly percent change in core personal consumption expenditures deflator plus unemployment rate. Source: US Department of Commerce, Bureau of Economic Analysis and US Department of Labor, Bureau of Labor Statistics, and Thomson Reuters I/B/E/S. Page / July, 1 / Stock Market Valuation Metrics & Models www.

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