{"id":9791,"date":"2014-05-08T00:45:48","date_gmt":"2014-05-08T04:45:48","guid":{"rendered":"http:\/\/goldstocksforex.com\/?p=9791"},"modified":"2014-05-08T00:45:48","modified_gmt":"2014-05-08T04:45:48","slug":"is-the-market-overpriced-episode-iii","status":"publish","type":"post","link":"https:\/\/thepatientinvestor.com\/index.php\/2014\/05\/08\/is-the-market-overpriced-episode-iii\/","title":{"rendered":"Is the market overpriced? Episode III"},"content":{"rendered":"<p>US markets look pricey when we <a href=\"http:\/\/goldstocksforex.com\/2014\/05\/07\/is-the-market-overpriced-episode-ii\/\" title=\"Is the market overpriced? Episode II\" target=\"_blank\">compare market capitalization to GDP<\/a>. Why is the market ignoring this?<\/p>\n<p>The S&amp;P 500 is trading on a reasonable forward Price-Earnings Ratio (PE) of 15.17, but this forecasts a 23% jump in earnings over the next 12 months. Current <em>as reported<\/em> PE of 18.64 also assumes strong earnings growth.<\/p>\n<p><img data-recalc-dims=\"1\" loading=\"lazy\" decoding=\"async\" class=\"aligncenter\" width=\"525\" height=\"363\" title=\"S&amp;P 500\" alt=\"S&amp;P 500\" src=\"https:\/\/i0.wp.com\/www.incrediblecharts.com\/images\/2014\/2014-05-08-spx-pe.png?resize=525%2C363&#038;ssl=1\" \/><\/p>\n<p>Margins are growing:<br \/>\n<img data-recalc-dims=\"1\" loading=\"lazy\" decoding=\"async\" class=\"aligncenter\" width=\"525\" height=\"363\" title=\"S&amp;P 500\" alt=\"S&amp;P 500\" src=\"https:\/\/i0.wp.com\/www.incrediblecharts.com\/images\/2014\/2014-05-06-spx-eps-sales.png?resize=525%2C363&#038;ssl=1\" \/><\/p>\n<p>But sales growth close to zero warns that earnings may falter:<br \/>\n<img data-recalc-dims=\"1\" loading=\"lazy\" decoding=\"async\" class=\"aligncenter\" width=\"525\" height=\"363\" title=\"S&amp;P 500\" alt=\"S&amp;P 500\" src=\"https:\/\/i0.wp.com\/www.incrediblecharts.com\/images\/2014\/2014-05-08-spx-sales-growth.png?resize=525%2C363&#038;ssl=1\" \/><\/p>\n<p>Book value is surprisingly growing faster than sales, suggesting that corporations are hoarding assets rather than distributing profits to shareholders:<br \/>\n<img data-recalc-dims=\"1\" loading=\"lazy\" decoding=\"async\" class=\"aligncenter\" width=\"525\" height=\"363\" title=\"S&amp;P 500\" alt=\"S&amp;P 500\" src=\"https:\/\/i0.wp.com\/www.incrediblecharts.com\/images\/2014\/2014-05-08-spx-bookvalue.png?resize=525%2C363&#038;ssl=1\" \/><\/p>\n<p>Causing asset turnover (sales\/book value) to fall:<br \/>\n<img data-recalc-dims=\"1\" loading=\"lazy\" decoding=\"async\" class=\"aligncenter\" width=\"525\" height=\"363\" title=\"S&amp;P 500\" alt=\"S&amp;P 500\" src=\"https:\/\/i0.wp.com\/www.incrediblecharts.com\/images\/2014\/2014-05-08-spx-sales-book.png?resize=525%2C363&#038;ssl=1\" \/><\/p>\n<p>Which is why the valuation metric of Price to Book Value remains within reasonable bounds:<br \/>\n<img data-recalc-dims=\"1\" loading=\"lazy\" decoding=\"async\" class=\"aligncenter\" width=\"525\" height=\"363\" title=\"S&amp;P 500\" alt=\"S&amp;P 500\" src=\"https:\/\/i0.wp.com\/www.incrediblecharts.com\/images\/2014\/2014-05-06-spx-price-book.png?resize=525%2C363&#038;ssl=1\" \/><\/p>\n<p>If management are unable to improve asset turnover &mdash; through improved sales or new investment &mdash; stockholders will start clamoring for higher distributions. Which may be one reason for high stock prices.<\/p>\n<p>The second reason is that, with interest rates, tax rates and real wages at historic lows, corporations are likely to make fat profits over the next few years and stocks remain reasonably buoyant. But at least one of these factors can be expected to change in the next decade: recovery of the housing market would cause the Fed to lift interest rates; a revision of the tax code by a President who can work with both sides of the House; or a dramatic fall in exchange rates placing upward pressure on (real) wages as manufacturers regain export markets. The impact of any change will depend on how well the economy has recovered.<\/p>\n<p>I will be watching sales growth, profit margins and asset turnover with interest over the next few quarters to see how this plays out.<\/p>\n","protected":false},"excerpt":{"rendered":"<p>US markets look pricey when we compare market capitalization to GDP. Why is the market ignoring this? The S&amp;P 500 is trading on a reasonable forward Price-Earnings Ratio (PE) of 15.17, but this forecasts a 23% jump in earnings over the next 12 months. Current as reported PE of 18.64 also assumes strong earnings growth. &hellip; <\/p>\n<p class=\"link-more\"><a href=\"https:\/\/thepatientinvestor.com\/index.php\/2014\/05\/08\/is-the-market-overpriced-episode-iii\/\" class=\"more-link\">Continue reading<span class=\"screen-reader-text\"> &#8220;Is the market overpriced? Episode III&#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":[37,57,34],"tags":[3010],"class_list":["post-9791","post","type-post","status-publish","format-standard","hentry","category-active-investing","category-stock-markets","category-us-canada-countries-regions","tag-sp-500"],"yoast_head":"<!-- This site is optimized with the Yoast SEO plugin v27.4 - https:\/\/yoast.com\/product\/yoast-seo-wordpress\/ -->\n<title>Is the market overpriced? Episode III - 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 market overpriced? 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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":[]},{"id":43986,"url":"https:\/\/thepatientinvestor.com\/index.php\/2023\/09\/08\/overpriced-sp-500-ignores-declining-growth\/","url_meta":{"origin":9791,"position":1},"title":"Overpriced S&#038;P 500 ignores declining growth","author":"Colin Twiggs","date":"September 8, 2023","format":false,"excerpt":"The S&P 500 price-to-sales ratio jumped to 2.44 in June -- way above its long-term average of 1.68. Price-earnings ratio (PE) calculated using highest trailing earnings, surged to 22.5 in June -- well above the peaks from earlier crises like October 1929 (Black Friday) and October 1987 (Black Monday). Robert\u2026","rel":"","context":"In &quot;Banks &amp; Interest Rates&quot;","block_context":{"text":"Banks &amp; Interest Rates","link":"https:\/\/thepatientinvestor.com\/index.php\/category\/economy\/the-fed-banks-interest-rates\/"},"img":{"alt_text":"S&P 500 Price-to-Sales","src":"https:\/\/i0.wp.com\/www.incrediblecharts.com\/images\/2023\/2023-09-07-spx--sales.png?resize=350%2C200&ssl=1","width":350,"height":200,"srcset":"https:\/\/i0.wp.com\/www.incrediblecharts.com\/images\/2023\/2023-09-07-spx--sales.png?resize=350%2C200&ssl=1 1x, https:\/\/i0.wp.com\/www.incrediblecharts.com\/images\/2023\/2023-09-07-spx--sales.png?resize=525%2C300&ssl=1 1.5x, https:\/\/i0.wp.com\/www.incrediblecharts.com\/images\/2023\/2023-09-07-spx--sales.png?resize=700%2C400&ssl=1 2x"},"classes":[]},{"id":17473,"url":"https:\/\/thepatientinvestor.com\/index.php\/2018\/11\/24\/sp-500-earnings-rise-while-stocks-fall\/","url_meta":{"origin":9791,"position":2},"title":"S&#038;P 500 earnings rise while stocks fall","author":"Colin Twiggs","date":"November 24, 2018","format":false,"excerpt":"96% of S&P 500 component stocks have reported earnings for Q3 2018. Including estimates for stocks that have not yet reported points to a 29% increase over earnings for Q3 in the previous year. What is more interesting is that S&P are projecting a further 2% increase for the next\u2026","rel":"","context":"In &quot;Stock Markets&quot;","block_context":{"text":"Stock Markets","link":"https:\/\/thepatientinvestor.com\/index.php\/category\/stock-markets\/"},"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":9791,"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":52881,"url":"https:\/\/thepatientinvestor.com\/index.php\/2024\/05\/15\/sp-500-fundamentals-dont-stack-up\/","url_meta":{"origin":9791,"position":4},"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":18217,"url":"https:\/\/thepatientinvestor.com\/index.php\/2019\/05\/17\/is-the-sp-500-way-over-priced\/","url_meta":{"origin":9791,"position":5},"title":"Is the S&#038;P 500 way over-priced?","author":"Colin Twiggs","date":"May 17, 2019","format":false,"excerpt":"Robert Shiller's CAPE (Price\/10-year simple MA of inflation-adjusted earnings) is at 30.31, the second-highest peak (behind the Dotcom bubble) in 120 years. PEmax (Price\/highest prior 12-month earnings) is far lower at 21.04. I prefer this as a more accurate measure of stock pricing than CAPE. But PEmax is still high\u2026","rel":"","context":"In &quot;Stock Markets&quot;","block_context":{"text":"Stock Markets","link":"https:\/\/thepatientinvestor.com\/index.php\/category\/stock-markets\/"},"img":{"alt_text":"","src":"","width":0,"height":0},"classes":[]}],"_links":{"self":[{"href":"https:\/\/thepatientinvestor.com\/index.php\/wp-json\/wp\/v2\/posts\/9791","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=9791"}],"version-history":[{"count":0,"href":"https:\/\/thepatientinvestor.com\/index.php\/wp-json\/wp\/v2\/posts\/9791\/revisions"}],"wp:attachment":[{"href":"https:\/\/thepatientinvestor.com\/index.php\/wp-json\/wp\/v2\/media?parent=9791"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/thepatientinvestor.com\/index.php\/wp-json\/wp\/v2\/categories?post=9791"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/thepatientinvestor.com\/index.php\/wp-json\/wp\/v2\/tags?post=9791"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}