With the S&P 500 joining the rest of the maddening herd at new all-time highs, we are still told day after day that stocks are cheap. This seems somewhat odd in the face of an ugly reality that sees GDP and earnings expectations being ratcheted down day after day also.
Top-Down...
[3]
or Bottom-Up...
[4]
We decided to look at the facts. The current 12-month trailing P/E ratio (as reported earnings) is 18.3x; the 12-month trailing P/E ratio at the time of the 2007 peak in S&P 500 earnings was 17.7x - so stocks are in fact more expensive now than at the prior peak.
[5]
or as BK noted this evening [6], the S&P 500's valuation has reached an extreme once again...
[7]
Furthermore, S&P 500 operating earnings have peaked in the $24-25 per share range since 2007, but have never exceeded $26 per share.
[8]
The secret to the 'cheapness' is in the alchemy of the future...the hockey-stick above (green arrow)... S&P forecasts quarterly EPS will increase 28% to over $33 per share by 4Q14 (which means we are currently trading at 14.3x forecast 2014 as reported earnings)...
[9]
despite EBITDA having rolled over and growing at its slowest rate in over three years.
We are sure this will all end well!
(h/t Kurt Joerger of Joerger Financial)