Data:  As of Market Close:  12/14

  • S-&-P 500  –  Looks Can Be “Very” Deceiving

12/13/18

 

Without => “FANG” 

S-&-P 500… “P/E” Ratios haven’t been this Cheap in 35 Years   

Excluding the “FANG” stocks from the =>  S-&-P 500 Index

 

The remaining 495 stocks… Then left in the S&P 500 Index 

 

Are now priced at approximately 12x times expected 2019 earnings

Excluding the FANG technology group of stocks:

 

Facebook, Amazon.com, Netflix, Google -&- Microsoft (for good measure)

 

The remaining 495 stocks in the S&P 500….

 

Are now priced at approximately “12x times” expected 2019 earnings.

 

A even deeper dive within the S&P 500 database reveals…

 

There are now more than 100 Companies in the S-&-P 500

 

That now trading at forward price/earnings multiples =>  Below 8x times earnings

 

Historically …

 

The average price/earnings multiple for the S&P 500 has been around => 19x times earnings 

 

That’s not the only sign of cheapness within the S&P 500 Index

 

Over the history of finance… The appropriate price/earnings multiple for the stock market

 

Has been inversely related to the level of current interest rates.. Since valuations are discounted flows of future earnings

 

With current rates still at very low historical levels….

 

Stock multiples should be decidedly above their historical averages =>  (P/E of 19x times)

 

And that is with inflation… Currently running at just +2.00% percent

 

According to Value Line

 

There hasn’t been this many “Cheap Stocks”….

 

Since the peak of the credit crisis in late 2008 …

 

And what about … Before the 2008 credit crisis ??

 

You would have to go back a whopping “35 Years” to the 1984 era

 

That was the last time the US stock market saw this many cheap stocks…

 

This many (106) single-digit price/earnings multiple companies trading in the S&P 500

 

What did the Financial World look like in => 1984

 

1984 was a year after inflation saw its peak of => 10.00% percent

 

Also a year after 30 year T-Bond yields were coming down from a crest of => 15.00% percent

REFERENCE LINK:
https://goo.gl/xApnWJ