Valuation

Both Analysts & Investors Are Optimistic

Jul 5, 2023 2 min read paid

In the stock market equation P = P/E x E, the consensus expected forward earnings of industry analysts determines earnings (E), while investors determine the forward earnings multiple (P/E) that they are willing to pay for E. Industry analysts remain optimistic on S&P 500 forward revenues which rose to another record high during the June 29 week (chart). They've also stopped lowering their consensus expectations

Ed Yardeni

MegaCap-8 Stocks Had a Very Bad 2022

Jan 2, 2023 2 min read

Sometimes it is better to own a small boat than a very large yacht. The former is cheaper to operate and easier to maneuver. The MegaCap-8 stocks won the S&P 500 regatta during the pandemic years of 2020 and 2021. They badly underperformed during 2022 once the pandemic abated. (The MegaCap-8 stocks are Alphabet, Amazon, Apple, Meta, Microsoft, Netflix, NVIDIA, and Tesla.) Consider the following: (1) Market capitalization.

Ed Yardeni

Stock Valuation Multiples May Have Bottomed

Nov 12, 2022 1 min read Featured

There are no guarantees in life. Outcomes are usually contingent on a number of other outcomes, and so on. This certainly applies to the forward P/Es of the major S&P stock indexes shown below. If we continue to see better-than-expected inflation prints in coming months, like October's CPI on Thursday, then these valuation multiples most likely bottomed on October 12, when the S&P

Ed Yardeni

S&P 500 Fizzles

Oct 14, 2022 1 min read

Thursday's impressive reversal-day rally fizzled today. The big banks reported their Q3 earnings results today. On balance, they were better than expected. However, yesterday's hotter-than-expected CPI weighed on the bond market, even though today's retail sales was relatively weak. Our Blue Angels framework (chart below) shows that S&P 500 forward earnings have been relatively flat since it peaked in late June. The

Ed Yardeni

Buffett Is Bullish While His Ratio Is Bearish

Aug 20, 2022 1 min read paid

Yesterday, the Motley Fool reported that Warren Buffett's Berkshire Hathaway was on a buying spree during the recent bear market. Apparently, the Oracle of Omaha isn't concerned that his famous Buffett Ratio remains in bearish territory. In a December 2001 Fortune article, Buffett observed that when the ratio of the value of all stocks traded in the US to nominal GNP exceeds 200%, its best to

Ed Yardeni

Valuation-Led Rally Could Sputter This Week

Aug 7, 2022 1 min read paid

The bull runs in the bond market since June 14 and the stock market since June 16 could stall this week. Both markets have probably discounted that July's CPI report (on Wednesday) should be moderated by falling gasoline prices and durable goods prices, while rent inflation could be more troublesome. The markets may not have fully discounted the likelihood that July's strong employment report (reported this

Ed Yardeni

Revaluing Earnings

Jul 30, 2022 1 min read paid

In the past few weeks, industry analysts started to shave their S&P 500 earnings forecasts for this year and next year. Last Wednesday, the Fed raised the federal funds rate by 75bps to 2.25%-2.50%. On Thursday, we learned that real GDP fell for a second quarter in a row marking a technical recession, though a mild one so far. So, naturally, the stock market has

Ed Yardeni

A Couple of Bullish Bond Market Indicators

Jun 21, 2022 2 min read

Is the bond yield heading higher or lower? It should be heading higher given that it remains well below the rate of inflation. That’s unless investors believe that inflation is more likely to move lower than higher over the next few years if not in the immediate future. In any event, two useful bond market indicators are currently bullish for bonds and offer some hope for stocks too: (1)

Ed Yardeni

No Letup in the Valuation Meltdown

Jun 18, 2022 1 min read paid

The S&P 500’s forward P/E fell to 15.4 on Friday from just over 20.0 at the start of this year. That’s around the historical average for this valuation multiple. Lower readings typically have been associated with bear markets and recessions. The index fell into a bear market on Monday, but the jury is out on the recession call.

Ed Yardeni

A Short History Of Falling P/Es

May 23, 2022 1 min read paid

In the past, there have been dives in the S&P 500’s valuation multiple similar to the one so far this year: (1) The valuation deterioration in the early 1970s was associated with the devaluation of the dollar by President Nixon and the first of the decade’s two energy price shocks. Along the way, Franklin National blew up. Inflation was a protracted problem throughout the 1970s. (2)

Ed Yardeni

Forward P/Es Falling Faster Than Forward Earnings Are Rising

May 20, 2022 1 min read

The S&P 500/400/600 stock price indexes are down 18.1%, 16.1%, and 16.4% ytd through today's close.

Ed Yardeni

The Buffett Ratio Remains High

May 12, 2022 2 min read

The Buffett Ratio rose to new record highs at the end of last year. In the past, Warren Buffett has opined that the stock market was overvalued when the ratio of the market capitalization of US equites to nominal GDP rose to around 2.0 or higher.

Ed Yardeni

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