FAST FIVE: The S&P 500 Is Now Overvalued On 18 Of 20 Metrics
This is a far cry from the robust sales growth we saw throughout 2017 and 2018.
The sectors seeing the strongest revenue growth are Communication Services and Health Care, however the rising margin compression suggests that labor and wage costs are now aggressively eating away at the bottom line.
But, as Bank of America calculates, following the recently-announced 10% tariffs on additional Chinese goods and looming recession risks, the P/E fell over 5% so far in August, to 16.1x.
Subjective, and generally irrelevant dividend comparisons aside as bonds and stocks are worlds apart when it comes to their risk profile, to allow readers to decide for themselves whether stocks are massively overvalued and overbought, or perhaps cheap compared to the world's biggest bond bubble, here is a breakdown of the S&P 500 across a wide variety of valuation measures proposed by Bank of America, 20 in total. What the analysis shows is that of 20 metrics, the S&P is overvalued based on 18 by as much as 92% (on a historical market cap to GDP basis) and up to 114% if looking at the S&P in WTI terms, and is cheap only according Price to Free Cash Flow (23.8x vs 28.0x) which however is a function of ultra low interest rates, and also based on a ratio of Trailing (-2% cheap) but not Forward PEG multiples.
This means that the market is currently trading at 22x this implied trough EPS, the most expensive valuation since the Tech Bubble.