Where We Stand: Valuations
BELOW IS A LOOK at today’s market valuations:
- As of mid-2018, the stocks in the S&P 500 were trading at a price-earnings ratio of 24, based on trailing 12-month reported earnings, making them expensive by historical standards. To view the S&P 500’s price-earnings multiple, and also its dividend yield, head to WSJmarkets.com.
- The S&P 500 stocks ended 2018’s second quarter at a cyclically adjusted price-earnings (CAPE) ratio of 32, versus a 50-year average of 19.9. CAPE compares current share prices to average inflation-adjusted earnings for the past 10 years.
- Stocks, as of 2018’s first quarter, were trading at an 11.8% premium to the value of corporate assets, compared to an average discount of 31% since 1900. This measure of stock market value is known as Tobin’s Q.
- U.S. stocks offer a dividend yield of 1.8%, versus 3.7% for U.K. shares, 2.8% for France, 2.8% for Canada, 2.7% for Germany and 2% for Japan, according to data for May 31, 2018, from StarCapital.de. Using a variety of market yardsticks, the site ranks the U.S. market among the world’s most expensive.
- U.S. equity real estate investment trusts have had a rough time so far in 2018, as rising interest rates have driven down REIT prices. As of May 2018, equity REITs were yielding 4.1%, below the 10.1% peak hit in February 2009, but above the 3.1% low of April 2013.
- The benchmark 10-year Treasury note was yielding 2.86% at the end of 2018’s second quarter, while 10-year inflation-indexed Treasurys were yielding 0.74% more than inflation. The difference between those two yields suggests the financial markets expect inflation of 2.1% a year over the next decade.
- At the end of 2018’s second quarter, high-yield junk bonds were yielding 3.6 percentage points more than Treasurys—well below the historical average.
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