Bubblewatch - multiple expansion
Third quarter earnings in the US give us a chance to check on traditional valuation measures, so we can assess whether this is an equity bubble, or if it's different this time.
Russell 2000 (small and mid-cap companies) trailing earnings PE multiple is now 85 times vs 29 a year earlier.
S&P500 PE multiple on the same basis is now ... 19 times, vs 16 times a year ago.
The S&P is up 46% from 2 years ago whilst earnings have increased 5%.
It may be rational to bid up equity prices as an investor seeks yield especially in the face of fast rising living costs, however the low-yield environment is centrally planned by a handful of (mostly) men, not the product of market decision-makers. There will be a reversion to the mean for yields generally, though it won't be policy-makers who cause it.
When it happens the (now nearly 5 yr) bull market will end.
Conclusion: bubble-like.
Russell 2000 (small and mid-cap companies) trailing earnings PE multiple is now 85 times vs 29 a year earlier.
S&P500 PE multiple on the same basis is now ... 19 times, vs 16 times a year ago.
The S&P is up 46% from 2 years ago whilst earnings have increased 5%.
It may be rational to bid up equity prices as an investor seeks yield especially in the face of fast rising living costs, however the low-yield environment is centrally planned by a handful of (mostly) men, not the product of market decision-makers. There will be a reversion to the mean for yields generally, though it won't be policy-makers who cause it.
When it happens the (now nearly 5 yr) bull market will end.
Conclusion: bubble-like.
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