By two simple valuation measures, the S&P 500 is overvalued by the biggest margin in twenty years.
First, the S&P 500 level has run ahead of earnings per share to an extent not seen since 1999, right before the great tech crash.
Second, earnings per share exceed actual profits by the largest amount in the past twenty years, mainly due to equity buybacks. Buybacks are an effective way to boost earnings per share by reducing the number of outstanding shares. That works when interest rates are low and credit conditions are easy, but not so much when rates rise.
The chart above shows the regression of the level of the S&P against earnings per share. The circled areas on the residual line show periods when the S&P rose much more than per-share earnings could explain. By this reckoning the S&P is a full 500 points (or 18%) higher than predicted by the long-term relationship between earnings and price.
That’s not the worst of it, though.
Corporations report their total profits to the Treasury Department for tax purposes, and the government uses this data to calculate the actual level of corporate profits. In the chart below, we compare after-tax corporate profits to reported earnings per share.
Earnings per share are much higher ($10 per share, or 28%) than the total amount of after-tax corporate profits can explain.
Assuming that the level of the S&P reverts to the historical relationship between index price and earnings per share, and, secondly, that earnings per share revert to the historical relationship between EPS and total corporate profits as reported by the government, the index will fall by 18% + 28%, or 46%.
I’m not predicting a 46% decline in the S&P 500, to be sure. But the stock market is so rich by historical standards that it is a lot more likely to go down than to go up.
What about housing? It is also high by historical standards (Shiller Index) and relative to mean income.
What about housing? It is also high by historical standards (Shiller Index) and relative to mean income.
HAAHHAAH Told U so. Except opiods. Those will be higher demanded hahahah
HAAHHAAH Told U so. Except opiods. Those will be higher demanded hahahah
Already down. Who got cash to buy besides Chinese Mainlanders? hahahaha
Already down. Who got cash to buy besides Chinese Mainlanders? hahahaha
Oh yeah wait for earnings and black friday results. Idiots chose bigger Idiot to wreck the gravy train. China is never fvcking goin to trust Americans again nor give any preferential treatments. eg Ford sold more cars and more profitable than in USA. Now there goes that America First bullsh!t hahahaha
Oh yeah wait for earnings and black friday results. Idiots chose bigger Idiot to wreck the gravy train. China is never fvcking goin to trust Americans again nor give any preferential treatments. eg Ford sold more cars and more profitable than in USA. Now there goes that America First bullsh!t hahahaha
Hot money chasing zero growth stocks: good luck hedge funds and Wallt st. hehehehe
Hot money chasing zero growth stocks: good luck hedge funds and Wallt st. hehehehe
Hope it crashes soon, I have 250k to invest and ain’t getting any younger…
Hope it crashes soon, I have 250k to invest and ain’t getting any younger…
Shouldn’t one compare EPS to interest rates. Interest rates are still low by historical standards.
Shouldn’t one compare EPS to interest rates. Interest rates are still low by historical standards.
And UBER is going IPO in 2019!
And UBER is going IPO in 2019!
Flora de los Sinensis Her father was a collaborator with Japan during WW2 and she speaks Japanese in private.
Flora de los Sinensis Her father was a collaborator with Japan during WW2 and she speaks Japanese in private.
"The market can stay irrational longer than you can stay solvent."
It’s still true.
"The market can stay irrational longer than you can stay solvent."
It’s still true.
I wouldn’t underestimate the US government’s resolve and resources in propping up the stock market.
Japan and China are not eager buyers of US treasuries any more. The Fed is going to keep the printing pressing running. Interest rate is still too low, even though it seems to be raising alarms and causing market jitters already. The USD is unlikely to be strong, especially in view of accelerating de-dollarization.
Where will the money go?
I wouldn’t underestimate the US government’s resolve and resources in propping up the stock market.
Japan and China are not eager buyers of US treasuries any more. The Fed is going to keep the printing pressing running. Interest rate is still too low, even though it seems to be raising alarms and causing market jitters already. The USD is unlikely to be strong, especially in view of accelerating de-dollarization.
Where will the money go?