{"id":9580,"date":"2014-03-27T04:29:32","date_gmt":"2014-03-27T08:29:32","guid":{"rendered":"http:\/\/goldstocksforex.com\/?p=9580"},"modified":"2014-03-27T04:29:32","modified_gmt":"2014-03-27T08:29:32","slug":"is-the-sp-500-overvalued","status":"publish","type":"post","link":"https:\/\/thepatientinvestor.com\/index.php\/2014\/03\/27\/is-the-sp-500-overvalued\/","title":{"rendered":"Is the S&#038;P 500 overvalued?"},"content":{"rendered":"<p>The daily press appears convinced the S&amp;P 500 is overvalued and due for a crash. Yet the macro-economic and volatility filters that we use at <a href=\"http:\/\/www.portercapital.com.au\/\">Porter Capital<\/a> and <a href=\"http:\/\/researchandinvestment.com\/\">Research &amp; Investment<\/a> &mdash; to identify market risk so that we can move to cash when risks are elevated &mdash; show no signs of stress. So I have been delving into some of the aggregate index data, kindly provided by Standard and Poors, to see whether some of their arguments hold water.<\/p>\n<p>The Price-Earnings ratio for the S&amp;P 500 itself is not excessive when compared to the last decade.<\/p>\n<div class=\"chart\">\n<img data-recalc-dims=\"1\" loading=\"lazy\" decoding=\"async\" src=\"https:\/\/i0.wp.com\/www.incrediblecharts.com\/images\/2014\/spx-peratio.png?resize=525%2C381&#038;ssl=1\" height=\"381\" width=\"525\" alt=\"S&amp;P 500 Price-Earnings ratio\" title=\"S&amp;P 500 Price-Earnings ratio\" \/>\n<\/div>\n<p>The bears argue, however, that earnings are unsustainable. One reason advanced for this is that earnings growth has outstripped sales, with corporations focusing on the bottom line rather than business growth.<\/p>\n<blockquote><p>Faced with weak domestic demand, large US corporates have actively sought to manage their expenses so as to meet and exceed the market\u2019s expectations. Combined with the unwinding of provisions taken in the GFC, cost management has allowed US corporates to achieve a 124% increase in 12-month trailing earnings off the back of a 25% increase in 12-month trailing sales since October 2009.<br \/>\n~ Elliott Clarke, Westpac<\/p><\/blockquote>\n<p>That may be so, but any profit increase would look massive if compared to earnings in 2009. When we plot earnings against sales (per share), it tells a different story. Earnings as a percentage of sales is in the same band (7% &#8211; 9%) as 2003 to 2006. A rise above 9% would suggest that earnings may not be sustainable, but not if they continue in their current range.<\/p>\n<div class=\"chart\">\n<img data-recalc-dims=\"1\" loading=\"lazy\" decoding=\"async\" src=\"https:\/\/i0.wp.com\/www.incrediblecharts.com\/images\/2014\/spx-earnings-sales.png?resize=525%2C381&#038;ssl=1\" height=\"381\" width=\"525\" alt=\"S&amp;P 500 Earnings\/Sales\" title=\"S&amp;P 500 Earnings\/Sales\" \/>\n<\/div>\n<p>The second reason advanced is that business investment is falling. Westpac put up a chart that shows US equipment investment growth is close to zero. But we also need to consider that accelerated tax write-offs led to a surge in investment in 2009\/2010. The accelerated write-offs expired, but the level of investment merely stopped growing and has not fallen as I had expected.<\/p>\n<div class=\"chart\">\n<img data-recalc-dims=\"1\" height=\"215\" width=\"300\" decoding=\"async\" src=\"https:\/\/i0.wp.com\/www.macrobusiness.com.au\/wp-content\/uploads\/2014\/03\/dfvged1-300x215.png?resize=300%2C215\" alt=\"Westpac: US Equipment Investment Poor\" title=\"Westpac: US Equipment Investment Poor\" \/>\n<\/div>\n<p>Private (non-residential) fixed investment as a whole is rising as a percentage of GDP, not falling.<\/p>\n<div class=\"chart\">\n<img data-recalc-dims=\"1\" loading=\"lazy\" decoding=\"async\" src=\"https:\/\/i0.wp.com\/www.incrediblecharts.com\/images\/2014\/pnfi.png?resize=525%2C349&#038;ssl=1\" height=\"349\" width=\"525\" alt=\"S&amp;P 500 Price to Book Value\" title=\"S&amp;P 500 Price to Book Value\" \/>\n<\/div>\n<p>Lastly, when we compare the S&amp;P 500 to underlying net asset value per share, it shows how frothy the market was before the Dotcom crash, with the index trading at 5 times book value. That kind of premium is clearly unsustainable without double-digit GDP growth, which was never going to happen. But the current ratio of below 2.50 is modest compared to the past decade and quite sustainable.<\/p>\n<div class=\"chart\">\n<img data-recalc-dims=\"1\" loading=\"lazy\" decoding=\"async\" src=\"https:\/\/i0.wp.com\/www.incrediblecharts.com\/images\/2014\/spx-price-bookvalue.png?resize=525%2C381&#038;ssl=1\" height=\"381\" width=\"525\" alt=\"S&amp;P 500 Price to Book Value\" title=\"S&amp;P 500 Price to Book Value\" \/>\n<\/div>\n<p>I am not saying that everything is rosy &mdash; it never is &mdash; but if sales and earnings continue to grow apace, and with private fixed investment rising, the current price-earnings ratio does not look excessive.<\/p>\n","protected":false},"excerpt":{"rendered":"<p>The daily press appears convinced the S&amp;P 500 is overvalued and due for a crash. Yet the macro-economic and volatility filters that we use at Porter Capital and Research &amp; Investment &mdash; to identify market risk so that we can move to cash when risks are elevated &mdash; show no signs of stress. So I &hellip; <\/p>\n<p class=\"link-more\"><a href=\"https:\/\/thepatientinvestor.com\/index.php\/2014\/03\/27\/is-the-sp-500-overvalued\/\" class=\"more-link\">Continue reading<span class=\"screen-reader-text\"> &#8220;Is the S&#038;P 500 overvalued?&#8221;<\/span><\/a><\/p>\n","protected":false},"author":2,"featured_media":0,"comment_status":"open","ping_status":"open","sticky":false,"template":"","format":"standard","meta":{"_mo_disable_npp":"","_jetpack_memberships_contains_paid_content":false,"footnotes":""},"categories":[48,5,57,34],"tags":[1421,2625,2749,2750,3010,3028],"class_list":["post-9580","post","type-post","status-publish","format-standard","hentry","category-earnings-dividends","category-economy","category-stock-markets","category-us-canada-countries-regions","tag-fixed-investment","tag-pe","tag-price-to-book-value","tag-price-earnings-ratio","tag-sp-500","tag-sales-to-earnings"],"yoast_head":"<!-- This site is optimized with the Yoast SEO plugin v27.5 - https:\/\/yoast.com\/product\/yoast-seo-wordpress\/ -->\n<title>Is the S&amp;P 500 overvalued? - the patient investor<\/title>\n<meta name=\"robots\" content=\"noindex, follow\" \/>\n<meta property=\"og:locale\" content=\"en_US\" \/>\n<meta property=\"og:type\" content=\"article\" \/>\n<meta property=\"og:title\" content=\"Is the S&amp;P 500 overvalued? - the patient investor\" \/>\n<meta property=\"og:description\" content=\"The daily press appears convinced the S&amp;P 500 is overvalued and due for a crash. Yet the macro-economic and volatility filters that we use at Porter Capital and Research &amp; Investment &mdash; to identify market risk so that we can move to cash when risks are elevated &mdash; show no signs of stress. 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Yet the macro-economic and volatility filters that we use at Porter Capital and Research & Investment \u2014 to identify market risk so that we can move to cash when risks are elevated \u2014 show no\u2026","rel":"","context":"In &quot;Market Insights&quot;","block_context":{"text":"Market Insights","link":"https:\/\/thepatientinvestor.com\/index.php\/category\/market-insights\/"},"img":{"alt_text":"S&P 500 Price-Earnings ratio","src":"https:\/\/i0.wp.com\/www.incrediblecharts.com\/images\/2014\/spx-peratio.png?resize=350%2C200&ssl=1","width":350,"height":200,"srcset":"https:\/\/i0.wp.com\/www.incrediblecharts.com\/images\/2014\/spx-peratio.png?resize=350%2C200&ssl=1 1x, https:\/\/i0.wp.com\/www.incrediblecharts.com\/images\/2014\/spx-peratio.png?resize=525%2C300&ssl=1 1.5x"},"classes":[]},{"id":52881,"url":"https:\/\/thepatientinvestor.com\/index.php\/2024\/05\/15\/sp-500-fundamentals-dont-stack-up\/","url_meta":{"origin":9580,"position":1},"title":"S&#038;P 500 fundamentals don&#8217;t stack up","author":"Colin Twiggs","date":"May 15, 2024","format":false,"excerpt":"The S&P 500 threatens another advance, fueled by easy monetary conditions, but the fundamentals don't stack up. Sales and earnings multiples are stretched despite weak expected sales and earnings growth for the March quarter -- with 458 of 503 stocks in the index having reported. S&P 500 The index is\u2026","rel":"","context":"In &quot;GDP and Activity&quot;","block_context":{"text":"GDP and Activity","link":"https:\/\/thepatientinvestor.com\/index.php\/category\/economy\/gdp-and-activity\/"},"img":{"alt_text":"S&P 500","src":"https:\/\/i0.wp.com\/www.incrediblecharts.com\/images\/2024\/2024-05-14-spx.png?resize=350%2C200&ssl=1","width":350,"height":200,"srcset":"https:\/\/i0.wp.com\/www.incrediblecharts.com\/images\/2024\/2024-05-14-spx.png?resize=350%2C200&ssl=1 1x, https:\/\/i0.wp.com\/www.incrediblecharts.com\/images\/2024\/2024-05-14-spx.png?resize=525%2C300&ssl=1 1.5x"},"classes":[]},{"id":14767,"url":"https:\/\/thepatientinvestor.com\/index.php\/2017\/02\/04\/sp-500-price-earnings-suggest-time-to-buy\/","url_meta":{"origin":9580,"position":2},"title":"S&#038;P 500 Price-Earnings suggest time to buy","author":"ColinTwiggs","date":"February 4, 2017","format":false,"excerpt":"The forward Price-Earnings (PE) Ratio for the S&P 500, depicted by the blue line on the chart below, recently dipped below 20. In 2014 to 2105, PEs above 20 warned that stocks were overpriced. We can see from the green and orange bars on the chart that the primary reason\u2026","rel":"","context":"In &quot;Earnings &amp; Dividends&quot;","block_context":{"text":"Earnings &amp; Dividends","link":"https:\/\/thepatientinvestor.com\/index.php\/category\/investing\/earnings-dividends\/"},"img":{"alt_text":"","src":"","width":0,"height":0},"classes":[]},{"id":39540,"url":"https:\/\/thepatientinvestor.com\/index.php\/2022\/12\/14\/have-stock-prices-lost-touch-with-reality\/","url_meta":{"origin":9580,"position":3},"title":"Have stock prices lost touch with reality?","author":"Colin Twiggs","date":"December 14, 2022","format":false,"excerpt":"Robert Shiller's cyclically-adjusted PE (or CAPE) is at a similar level to the 1929 peak before the greatest crash in US history. CAPE uses a 10-year average of inflation-adjusted earnings in order to smooth out fluctuations in earnings. The current reading of 29.2 is almost double the low during the\u2026","rel":"","context":"In &quot;Australia &amp; NZ&quot;","block_context":{"text":"Australia &amp; NZ","link":"https:\/\/thepatientinvestor.com\/index.php\/category\/countries-regions\/australia-nz-countries-regions\/"},"img":{"alt_text":"US Stock Market Capitalization\/GDP","src":"https:\/\/i0.wp.com\/www.incrediblecharts.com\/images\/2022\/2022-12-12-mcap-gdp.png?resize=350%2C200&ssl=1","width":350,"height":200,"srcset":"https:\/\/i0.wp.com\/www.incrediblecharts.com\/images\/2022\/2022-12-12-mcap-gdp.png?resize=350%2C200&ssl=1 1x, https:\/\/i0.wp.com\/www.incrediblecharts.com\/images\/2022\/2022-12-12-mcap-gdp.png?resize=525%2C300&ssl=1 1.5x"},"classes":[]},{"id":47941,"url":"https:\/\/thepatientinvestor.com\/index.php\/2024\/01\/31\/sp-500-losing-touch-with-reality\/","url_meta":{"origin":9580,"position":4},"title":"S&#038;P 500 losing touch with reality","author":"Colin Twiggs","date":"January 31, 2024","format":false,"excerpt":"The S&P 500 climbed to a new high after breaking resistance at its January '22 high of 4800. Rising Trend Index troughs warn of strong buying pressure. Pricing seems to be losing touch with reality. The S&P 500 Price-Earnings ratio climbed to 24.2 on December 31st and is forecast to\u2026","rel":"","context":"In &quot;US &amp; Canada&quot;","block_context":{"text":"US &amp; Canada","link":"https:\/\/thepatientinvestor.com\/index.php\/category\/countries-regions\/us-canada-countries-regions\/"},"img":{"alt_text":"S&P 500","src":"https:\/\/i0.wp.com\/www.incrediblecharts.com\/images\/2024\/2024-02-05-spx.png?resize=350%2C200&ssl=1","width":350,"height":200,"srcset":"https:\/\/i0.wp.com\/www.incrediblecharts.com\/images\/2024\/2024-02-05-spx.png?resize=350%2C200&ssl=1 1x, https:\/\/i0.wp.com\/www.incrediblecharts.com\/images\/2024\/2024-02-05-spx.png?resize=525%2C300&ssl=1 1.5x"},"classes":[]},{"id":26535,"url":"https:\/\/thepatientinvestor.com\/index.php\/2021\/06\/26\/sp-500-and-the-fed-taper\/","url_meta":{"origin":9580,"position":5},"title":"S&#038;P 500 and the Fed taper","author":"Colin Twiggs","date":"June 26, 2021","format":false,"excerpt":"S&P 500 earnings forecasts show a sizable jump in the March quarter (97.3% reported) followed by a weaker June quarter as the economy struggles with supply chain interruptions and labor shortages. Record operating margins of 13.0% estimated for the first quarter (March '21) are unlikely to be repeated. The average\u2026","rel":"","context":"In &quot;GDP and Activity&quot;","block_context":{"text":"GDP and Activity","link":"https:\/\/thepatientinvestor.com\/index.php\/category\/economy\/gdp-and-activity\/"},"img":{"alt_text":"","src":"","width":0,"height":0},"classes":[]}],"_links":{"self":[{"href":"https:\/\/thepatientinvestor.com\/index.php\/wp-json\/wp\/v2\/posts\/9580","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/thepatientinvestor.com\/index.php\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/thepatientinvestor.com\/index.php\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/thepatientinvestor.com\/index.php\/wp-json\/wp\/v2\/users\/2"}],"replies":[{"embeddable":true,"href":"https:\/\/thepatientinvestor.com\/index.php\/wp-json\/wp\/v2\/comments?post=9580"}],"version-history":[{"count":0,"href":"https:\/\/thepatientinvestor.com\/index.php\/wp-json\/wp\/v2\/posts\/9580\/revisions"}],"wp:attachment":[{"href":"https:\/\/thepatientinvestor.com\/index.php\/wp-json\/wp\/v2\/media?parent=9580"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/thepatientinvestor.com\/index.php\/wp-json\/wp\/v2\/categories?post=9580"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/thepatientinvestor.com\/index.php\/wp-json\/wp\/v2\/tags?post=9580"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}