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The GAAP P/E of the S&P is now at 24.28, that's near, if not, a record high. That's bad. It's very overvalued historically. Banking stocks are doing badly becau

The GAAP P/E of the S&P is now at 24.28, that's near, if not, a record high. That's bad. It's very overvalued historically. Banking stocks are doing badly because interest rates are so low across the curve that they can't make money from the spread. But even at that, they are overvalued along with various momentum stocks like Tesla, Netflix (which we saw implode yesterday.)

dismal2 11y ago
no worries the FED will do SOMETHING and save us, SOMEHOW. no moral hazard to see here.
maerF0x0 11y ago
I started investing my retirement money recently. Thats about a good of a signal as any that its going to plummet.
- chrisgd 11y ago
  Ah yes, the old maerF0x0 indicator. Beloved in some technical analysis circles
  - stock_toaster 11y ago
    I've heard it many times in the back-rooms: "Wherever maerF0x0 goes, don't."
    - wbillingsley 11y ago
      I hear the name even comes from the sound you make when you've just taken a mouthful of your breakfast toast, open the newspaper to the financial pages, and see what's happened to the value of your investments.
      - dataisfun 11y ago
        What a lovely mini thread! Thanks for the quick laugh :)
- imtringued 11y ago
  If you're investing for retirement into an index fond then where is the problem? Just wait until the recession is over (and perhaps buy more cheap stock). If you want to retire during a rececssion don't liquidate all your assets. Only as much as you actually need. If you believe that the market is never going to recover why invest in the first place?
  - maerF0x0 11y ago
    it was partially a joke. But yes, dollar cost averaging across a recession will make the total portfolio look ok. I do wonder if we can always continue to make higher and higher "highs" in the market though, meaning any investments I make at the top will make $0 gain. I do agree with you overall about indexing, however "Just wait until the recession is over" is market timing and I dont believe I (or others) can do this dependably well.
thecourier 11y ago
man, I do believe the market in general is over valued. but not from the PE ratio. that metric is almost in shape: https://www.quandl.com/data/MULTPL/SP500_PE_RATIO_MONTH-S-P-500-PE-Ratio-by-Month https://www.quandl.com/data/MULTPL/SP500_PE_RATIO_MONTH-S-P-... check how high it was in the 2000 and 2008, we're aren't even close
- CoffeeDregs 11y ago
  Those gigantic spikes represent plunges in earnings, not spikes in share prices... If you look right before the spikes, you'll see PE ratios in the mid- to high-twenties.
- partiallypro 11y ago
  If you'll look at your chart, those peaks in ~2002 & ~2009 were market bottoms, earnings had already dropped precipitously; and they were also black swan events. Historically from a F P/E and P/E ratio, the market is overvalued, even without a black swan. Also when you look at the debt market right now, it does not look healthy at all. That's usually a sign that something is brewing, usually a recession. However, stocks can continue higher, blow off tops are common place in the last phases of a bull market. My fear is that the central banks are pumping so much liquidity into the market that they are driving up equities and pushing people out of safer assets into things like high yield bonds and momentum stocks. If we do have a recession, the pain could be worse than usual (for stocks) for the mere fact that the debt market could have liquidity problems when tons of funds begin to pull their money out at once from HY. Not to mention all of the corporate buybacks that companies are doing by leveraging, because cash is too expensive to bring back overseas. You can still invest in solid companies, but companies like Tesla, Netflix, anything with a super high P/E is going to be taken out back and shot (that doesn't mean the companies will go out of business, only that their stocks are much like Amazon in the 2000s.)
  - ethbro 11y ago
    > companies like Tesla, Netflix, anything with a super high P/E is going to be taken out back and shot Not that I disagree with you, but I believe a contrarian viewpoint would be something along the lines of "We are currently in the midst of an economic revolution as increasingly large swathes of activity are digitized and lingering mechanical/human processes are computerized. Companies likely to be successful in this new economy are unlikely to be the same ones which were successful in the old." (To which the obvious rebuttal is probably "People are always saying things are about to be different, and they're usually wrong.")
jonknee 11y ago
What else would you expect to happen in a world with negative interest rates?
usaar333 11y ago
The high P/E is driven by interest rates being low. One can argue the way to judge stocks value is not by P/E but by E/P relative to interest rates; that is whether their excess return relative to risk-free assets is justified by their risk. Interest rates remain 5% below their long-term historical average, which can justify E/P going up significantly. Currently stocks offer a 3.5% return over some classes of t-bonds, well in line with historical norms.
- mathattack 11y ago
  This is very true. It's earning yield versus fixed income yield that matters most. If one is out of whack with the other, then there there is arbitrage. (All things equal, if there's a much better yield in equities, then people will move money from bonds to equities, or vice versa) The current danger is that both will move down at the same time, and then where should one invest?
forgetsusername 11y ago
>The GAAP P/E of the S&P is now at 24.28, that's near, if not, a record high Not even close to a record high. It's slightly high, but is it surprising that people are will to put a premium on earnings with negative interest rates?
lorenzhs 11y ago
Netflix at -12% is hardly an implosion. For a growth stock like Netflix, it's not too uncommon. Just look at their chart, it's had plenty of jumps in either direction when their quarterly report exceeded or failed to meet expectations.

dismal2 11y ago

no worries the FED will do SOMETHING and save us, SOMEHOW. no moral hazard to see here.

maerF0x0 11y ago

I started investing my retirement money recently. Thats about a good of a signal as any that its going to plummet.

chrisgd 11y ago
Ah yes, the old maerF0x0 indicator. Beloved in some technical analysis circles
- stock_toaster 11y ago
  I've heard it many times in the back-rooms: "Wherever maerF0x0 goes, don't."
  - wbillingsley 11y ago
    I hear the name even comes from the sound you make when you've just taken a mouthful of your breakfast toast, open the newspaper to the financial pages, and see what's happened to the value of your investments.
    - dataisfun 11y ago
      What a lovely mini thread! Thanks for the quick laugh :)
imtringued 11y ago
If you're investing for retirement into an index fond then where is the problem? Just wait until the recession is over (and perhaps buy more cheap stock). If you want to retire during a rececssion don't liquidate all your assets. Only as much as you actually need. If you believe that the market is never going to recover why invest in the first place?
- maerF0x0 11y ago
  it was partially a joke. But yes, dollar cost averaging across a recession will make the total portfolio look ok. I do wonder if we can always continue to make higher and higher "highs" in the market though, meaning any investments I make at the top will make $0 gain. I do agree with you overall about indexing, however "Just wait until the recession is over" is market timing and I dont believe I (or others) can do this dependably well.

thecourier 11y ago

man, I do believe the market in general is over valued. but not from the PE ratio. that metric is almost in shape: https://www.quandl.com/data/MULTPL/SP500_PE_RATIO_MONTH-S-P-500-PE-Ratio-by-Month https://www.quandl.com/data/MULTPL/SP500_PE_RATIO_MONTH-S-P-... check how high it was in the 2000 and 2008, we're aren't even close

CoffeeDregs 11y ago
Those gigantic spikes represent plunges in earnings, not spikes in share prices... If you look right before the spikes, you'll see PE ratios in the mid- to high-twenties.
partiallypro 11y ago
If you'll look at your chart, those peaks in ~2002 & ~2009 were market bottoms, earnings had already dropped precipitously; and they were also black swan events. Historically from a F P/E and P/E ratio, the market is overvalued, even without a black swan. Also when you look at the debt market right now, it does not look healthy at all. That's usually a sign that something is brewing, usually a recession. However, stocks can continue higher, blow off tops are common place in the last phases of a bull market. My fear is that the central banks are pumping so much liquidity into the market that they are driving up equities and pushing people out of safer assets into things like high yield bonds and momentum stocks. If we do have a recession, the pain could be worse than usual (for stocks) for the mere fact that the debt market could have liquidity problems when tons of funds begin to pull their money out at once from HY. Not to mention all of the corporate buybacks that companies are doing by leveraging, because cash is too expensive to bring back overseas. You can still invest in solid companies, but companies like Tesla, Netflix, anything with a super high P/E is going to be taken out back and shot (that doesn't mean the companies will go out of business, only that their stocks are much like Amazon in the 2000s.)
- ethbro 11y ago
  > companies like Tesla, Netflix, anything with a super high P/E is going to be taken out back and shot Not that I disagree with you, but I believe a contrarian viewpoint would be something along the lines of "We are currently in the midst of an economic revolution as increasingly large swathes of activity are digitized and lingering mechanical/human processes are computerized. Companies likely to be successful in this new economy are unlikely to be the same ones which were successful in the old." (To which the obvious rebuttal is probably "People are always saying things are about to be different, and they're usually wrong.")

jonknee 11y ago

What else would you expect to happen in a world with negative interest rates?

usaar333 11y ago

The high P/E is driven by interest rates being low. One can argue the way to judge stocks value is not by P/E but by E/P relative to interest rates; that is whether their excess return relative to risk-free assets is justified by their risk. Interest rates remain 5% below their long-term historical average, which can justify E/P going up significantly. Currently stocks offer a 3.5% return over some classes of t-bonds, well in line with historical norms.

mathattack 11y ago
This is very true. It's earning yield versus fixed income yield that matters most. If one is out of whack with the other, then there there is arbitrage. (All things equal, if there's a much better yield in equities, then people will move money from bonds to equities, or vice versa) The current danger is that both will move down at the same time, and then where should one invest?

forgetsusername 11y ago

>The GAAP P/E of the S&P is now at 24.28, that's near, if not, a record high Not even close to a record high. It's slightly high, but is it surprising that people are will to put a premium on earnings with negative interest rates?

lorenzhs 11y ago

Netflix at -12% is hardly an implosion. For a growth stock like Netflix, it's not too uncommon. Just look at their chart, it's had plenty of jumps in either direction when their quarterly report exceeded or failed to meet expectations.