The S&P 500 Is Now Overvalued On 18 Of 20 Valuation Metrics

Tyler Durden's picture

After last week's brief war with North Korean-inspired volatility explosion (and just as rapid subsequent retracement), some have asked if the resulting market decline, which is down a further 1% on today's latest terrorist attack in Spain, has made stocks more attractive. Here is the quick answer according to Bank of America: based on the 20 most widely used valuation metrics, the S&P remains substantially overvalued on 18 of 20 valuation metrics, the only exceptions being free cash flow, helped by depressed capex), and relative to bonds  - the Fed's favorite indicator which got a shout out in yesterday's FOMC minutes -  where yields remain depressed thanks to $18 trillion in global central bank purchases.

Some brief thoughts on valuation from BofA's Savita Subramanian:

The S&P 500 forward P/E expanded in July to 17.7x from 17.4x—its highest level in 13½ years—as the market rallied more than estimates climbed. The valuation backdrop forthe S&P 500 remains the same: US stocks trade above historical average levels across nearly all metrics we track, but equities continue to look attractive relative to bonds, where the equity risk premium (ERP) is more than 50% above its long-term average. Multiples expanded across most sectors last month, with the exception of Industrials and Staples—both of which now trade in-line with historical average levels. Energy—which was among the best-performing sectors in July—saw the most multiple expansion last month. The sector continues to trade at a record discount to history on relative Price/Book, but grew increasingly expensive on relative forward P/E as analysts revised down EPS estimates amid the continued weakness in oil prices.

And a bonus chart: with the S&P just still just shy of all time highs, here is BofA's summary of the distribution of global "minor" and "major" geopolitical risks.

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Rainman's picture

This means they got 2 valuation metrics left to burn ! ..... Dow30k !!

ReturnOfDaMac's picture

I like! Dance while the music is playing.  Buy,buy,buy.

StackShinyStuff's picture

So BTFD until we get to 22! (Dialed to 11 x 2)

GUS100CORRINA's picture

My work suggests that all 20 are over valued. P/FCF is WRONG. Not sure how they did it, but it is very wrong.

NEOSERF's picture

It's probably nothing

Crazy Or Not's picture

Nothing to see here, these are not the droids ....

libertyanyday's picture

The trillions of colored paper currency has to go somewhere!!!

jamesmmu's picture

I think this is it!


The crash is happening.

DEMIZEN's picture

tomorrow ends on a high note.

poland spring's picture

better add india as red

dogballs's picture

Mr. Yellen said all is well and markets aren't overpriced. What's wrong with you all?

Iskiab's picture

Actually Yellen said today that the market is inflated.

Person from BoA said she believes stocks are still the best investment, but that's her job so I guess you can't fault her for that.

candyman's picture

so we are down 3 points from monday-ooooh, run for the hills <sarc>

franzpick's picture

As are all indices overvalued, particularly retail XRT, today breaking 4 year horizontal support at 39, not to mention completing a 4 year head and shoulders pattern that suggests a 25% downward valuation adjustment to 30, down a clean 25%:

Igor Viguini's picture

Social security reform in Brazil? It´s not going to happen, not in september/2017, not under Presiden Temer. Chances are slim or zero. 

Catahoula's picture

Doesnt matter. BUY BUY BUY

Shleprock's picture

Sell this stanky   ...    going down boys!!!

Five Star's picture

Market Cap to GDP has only been higher for about a year in 2000.

oDumbo's picture

I wonder how Hitlery's $2 billion Canadian non-profit blood money IOU hedge fund is performing.  I hope it does well, he and Curious George soros have got a lot of peaceful rally counter-protestors to fund!  "$25 / hour to carry a bat and try to fuck up the right in any way possible.  Don't worry, if you cross the line, CNN, ABC, etc won't show it anyway.  Now get out there and show them what crazy really looks like!"

Kaleb's picture

Got it!

On political risk, its USA extreme and Venezuela average.

Got it.  Thanks for wasting my time and proving your creditability, Good bye.