This May Be The Most Expensive Stock Market In 40 Years

seekingalpha10-20 18:15

The S&P 500 is historically expensive, with high PE and price-to-sales ratios, suggesting lower future returns for index fund investors.Current PE and price-to-sales ratios exceed those of the dot-com...

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}\n.meta {color:#5e5c6d;font-size:13px;margin:0 0 .5em; }\na{text-decoration:none; color:#2a4b87;}\n.meta .head { display: inline-block; overflow: hidden}\n.head .h-thumb { width: 30px; height: 30px; margin: 0; padding: 0; border-radius: 50%; float: left;}\n.head .h-content { margin: 0; padding: 0 0 0 9px; float: left;}\n.head .h-name {font-size: 13px; color: #eee; margin: 0;}\n.head .h-time {font-size: 11px; color: #7E829C; margin: 0;line-height: 11px;}\n.small {font-size: 12.5px; display: inline-block; transform: scale(0.9); -webkit-transform: scale(0.9); transform-origin: left; -webkit-transform-origin: left;}\n.smaller {font-size: 12.5px; display: inline-block; transform: scale(0.8); -webkit-transform: scale(0.8); transform-origin: left; -webkit-transform-origin: left;}\n.bt-text {font-size: 12px;margin: 1.5em 0 0 0}\n.bt-text p {margin: 0}\n</style>\n</head>\n<body>\n<div class=\"wrapper\">\n<header>\n<h2 class=\"title\">\nThis May Be The Most Expensive Stock Market In 40 Years\n</h2>\n\n<h4 class=\"meta\">\n\n\n2024-10-20 18:15 GMT+8&nbsp;&nbsp;&nbsp;<a href=https://seekingalpha.com/article/4727854-most-expensive-stock-market-40-years><strong>seekingalpha</strong></a>\n\n\n</h4>\n\n</header>\n<article>\n<div>\n<p>The S&P 500 is historically expensive, with high PE and price-to-sales ratios, suggesting lower future returns for index fund investors.Current PE and price-to-sales ratios exceed those of the dot-com...</p>\n\n<a href=\"https://seekingalpha.com/article/4727854-most-expensive-stock-market-40-years\">Source Link</a>\n\n</div>\n\n\n</article>\n</div>\n</body>\n</html>\n","isBrief":false,"type":0,"news_type":1,"symbol":"NDX","symbol_name":"纳斯达克100指数","start_time":0,"source_url":"https://seekingalpha.com/article/4727854-most-expensive-stock-market-40-years","article_id":"2476033389","we_media_id":null,"thumbnails":["https://static.seekingalpha.com/cdn/s3/uploads/getty_images/1362498891/image_1362498891.jpg"],"rights":null,"url":"https://stock-news.laohu8.com/highlight/detail?id=2476033389","pubTimestamp":1729419300,"sourceInfo":{"source_id":"seekingalpha","name":"Seeking Alpha"},"weMediaInfo":null,"summary":"The S&P 500 is historically expensive, with high PE and price-to-sales ratios, suggesting lower future returns for index fund investors.Current PE and price-to-sales ratios exceed those of the dot-com","collect":0,"end_time":0,"defaultTopTitle":"seekingalpha.com","property":[],"viewcount":null,"language":"en","relate_stocks":{"NDX":"纳斯达克100指数"},"translate_title":"这可能是40年来最贵的股市","themeId":null,"isJumpTheme":false,"ttsUrl":null,"symbols_score_info":{"NDX":0.9},"content_text":"The S&P 500 is historically expensive, with high PE and price-to-sales ratios, suggesting lower future returns for index fund investors.Current PE and price-to-sales ratios exceed those of the dot-com and COVID bubbles when adjusted for growth rates.Dividend yields are near historical lows, indicating the market's overvaluation compared to historical norms and the 10-year Treasury yield.Stock selection is crucial as high valuations imply lower future returns, especially for buy-and-hold investors and index fund participants.   AlexKalina/iStock via Getty Images Let's call it what is - quite possibly, the most expensive stock market in the past 40 years. Yes, the dot-com period saw higher raw valuations, but at least during the dot-com period, you were getting growth that could support those valuations. Based on this, we are paying more for stocks today than ever, and history tells us this doesn’t end well. While some will argue that the other 493 stocks in the S&P 500 are more fairly valued, and they may be, chances are if you invested in a stock market index fund, it is trading the S&P 500, not the S&P 493. As a result, today's investors are paying a premium for the index that history tells us may not deliver the expected future returns. This could mean lower future returns for those heavily invested in index funds. The PE Ratio Is At Historical High The current valuations of the S&P 500 quickly place it among the most expensive of the past 40 years, including the dot-com years, not just by one measure but by multiple measures. The price-to-sales ratio, the PE ratio, and the dividend yield quickly show that the current market valuation compares and exceeds the valuations witnessed in the dot-com bubble and the Covid bubble. The price-to-earnings ratio is by far the most used metric for measuring valuation. However, the PE ratio isn't perfect, and just because it is high doesn't mean the market is expensive. The PE ratio alone tells us how much we pay for earnings versus previous periods, giving us hints about market valuation. However, it doesn't tell us if the market is cheap or expensive; it only does when considering the earnings growth rate.   Bloomberg The PE ratio alone shows that blended earnings over the next 12 months, the S&P 500 trades at 23 times earnings, versus about 25 times earnings in 1999 and 2000, and 22 times in 2020 and 2021. However, it is also essential to consider the earnings growth rates and apply them to the PE ratio because, in 1999 and 2000, earnings grew by around 15% to 17% per year. In 2020 and 2021, earnings growth peaked at around 40% as they recovered from the COVID-19 lows. By the summer of 2024, earnings growth had peaked around 13%.   Bloomberg When adjusting the PE ratio for the growth rate, we find that in the 2000 time frame, the PEG ratio was around 1.5; in 2021, it was around 0.5. Today, that ratio is around 1.6, which means that when adjusting today's PE ratio for its growth rate, the market is more expensive than that of the dot-com period.   Bloomberg The other factor is that the PE ratio will tend to expand and contract with the underlying earnings growth rate. This would suggest that if the earnings cycle has experienced peak growth, the PE ratio should experience multiple contraction as growth continues to slow. The latest evidence suggests that the PE growth rate will likely decrease.   Bloomberg Looking forward, we can see that the growth rate is expected to fall to around 11% in 2026 from around 13.6% in 2025. For earnings, this would mean that for the PEG ratio to remain at 1.6, the PE multiple would need to contract to 17.6 by 2026. At 2026 estimates of $305 per share, the S&P value would decline to 5,368. Of course, this assumes that 2026 earnings estimates remain static and do not drop. However, given that earnings estimates for 2024 and 2025 are falling, it is highly probable that 2026 estimates should drop as well over time to adjust for lower earnings presently.   Bloomberg The Price-to-Sales Comparison The same is true when looking at the price-to-sales multiple for the S&P 500, which currently stands at 3, higher than in 2021 when it reached 2.9 and higher than in April 2000 at 2.7. Again, just like earnings, sales growth today is much slower than in the past. Sales growth was around 20% in early 2001, but that growth melted quickly as the US economy headed toward recession, leading to a falling price-to-sales ratio.   Bloomberg In 2021 and early 2022 sales growth peaked around 16%, and then started to head lower as the Fed raised rates to slow inflation.   Bloomberg Today, sales growth peaked at 6%. Meanwhile, the price-to-sales ratio has climbed to 3, which marks a high point over the last 40 years or is near a higher point. This is amazing, given that sales growth is only a fraction of what was compared to previous periods of higher multiples.   Bloomberg Sales growth is expected to remain flat for 2025 and 2026, meaning there’s little chance for growth to accelerate. In comparison, the growth-adjusted price-to-sales ratio was around 0.135 in 2000 and 0.181 in 2021, and today, it stands at 0.5—indicating that on a growth-adjusted basis, the market is much more expensive than in the past. With the current price-to-sales ratio around three and expected sales growth at 6% in 2026, maintaining a growth-adjusted ratio of 0.5 would value the S&P 500 at approximately 6,330, based on projected revenue of $2,110 per share.   Bloomberg However, it is unclear how likely that is to happen, considering that historically, the price-to-sale ratio tends to expand and contract with the revenue growth rate over time. One would think that with the sales growth rate remaining flat over time, the multiple would begin to contract. It is especially worth considering that the median Price-to-sales ratio is closer to 1.7; at that ratio, the S&P 500 is valued at just 3,600.   Bloomberg The Dividend Yield Even the dividend yield is among the lowest of all time, only lower during the dot-com bubble when it reached a low of 1.05%. When creating a ratio of the S&P 500 dividend yield versus the 10-year Treasury, it is clear that the S&P 500 is today only more expensive than during the period following the 1987 crash and the dot-com bubble.   Bloomberg It is always possible for the dividend yield to fall further, and if it were to fall to the lows seen in 2000 at 1.05%, at a current dividend rate of $74.40, the S&P 500 would rise to around 7,100, which would push the ratio of the dividend yield versus the 10-year to around 3.9. However, the median ratio appears closer to 2.2, meaning the dividend yield rises to around 1.85%, placing the dividend yield at a level closer to where it has historically traded since 2002. At the current dividend of $74.40 and 1.85% dividend yield, it would value the S&P 500 at roughly 4,000   Bloomberg There are plenty of easy ways to assume the market goes higher from current levels, assuming multiples continue to expand. More complicated is figuring out whether those multiples can continue to expand. If estimates for future growth rates are correct and human psychology hasn't changed, then multiples shouldn't expand. History tells us that they should contract. History also tells us that we are paying a lot for future earnings growth compared to what we have spent in the past, even when compared to the dot-com bubble. Does it mean that one shouldn't own stock? No, it doesn't mean that at all. It just means that stock selection today, depending on one's time frame, really matters because if you are a buy-and-hold investor or an investor in an index fund that invests in stocks, you are paying a lot to own stocks. History tells us that we should expect lower future returns.  Editor's Note: This article covers one or more microcap stocks. Please be aware of the risks associated with these stocks.","kind":null,"is_publish_news":true,"is_publish_highlight":false,"is_publish_live":false,"is_publish_wemedia":null,"editions":null,"column":"","sentiment":"-1","news_tag":"analysis","news_rank":0,"symbols":[],"gpt_button":0},"commentList":[],"isCommentEnd":true,"newsSizeData":{"likeSize":0,"commentSize":0,"repostSize":0,"favoriteSize":0,"likeStatus":false,"favoriteStatus":false},"APP":{"userAgent":"Mozilla/5.0 AppleWebKit/537.36 (KHTML, like Gecko; compatible; ClaudeBot/1.0; +claudebot@anthropic.com)","isDev":false,"isTTM":true,"deviceId":"web-server-community-laohu8-v3","version":"4.29.0","shortVersion":"4.29.0","platform":"web","vendor":"web","appName":"ttm","isIOS":false,"isAndroid":false,"isTiger":false,"isTHS":false,"isWeiXin":false,"isWeiXinMini":false,"isWeiBo":false,"isQQ":false,"isBaiduSwan":false,"isBaiduBox":false,"isDingTalk":false,"isToutiao":false,"isOnePlus":false,"isHuaWei":false,"isXiaomi":false,"isXiaomiWebView":false,"isOppo":false,"isVivo":false,"isSamsung":false,"isMobile":false},"href":"/m/news/2476033389"}