PE ratios correlate only very weakly with stock price returns, and different values tend to be "more typical" for different market sectors (e.g., financial stocks tend to have lower than average PE ratios without a corresponding higher than average price performance) and other considerations (e.g., dividend paying or not). Using PE ratio, and in particular a singular value of PE ratio, as a measure of value to support investment decisions, isn't necessarily likely to produce optimum portfolio performance. IMHO anyway
yeah this isn't talked about enough...
the market PE used to be 15ish and people still think of that as 'fairly valued.'
that was when financials and industrials made up the bulk of the market... and those industries typically have lower PEs
Now the market PE is 20-23ish. And many say 'don't buy it's too expensive.'
But a big reason for this 'expensiveness' is because tech and comms stocks now make up 30-40% of the index, and these industries tend to have high PEs for a lot of valid reasons.
If you want to have a portfolio of stocks with 15 PEs you can...they are out there...but the SP500 as a whole will have a higher PE because of all the tech. And it's not completely accurate to say the market is broadly overvalued because of this underlying change in the composition of the index.
PE ratios correlate only very weakly with stock price returns, and different values tend to be "more typical" for different market sectors (e.g., financial stocks tend to have lower than average PE ratios without a corresponding higher than average price performance) and other considerations (e.g., dividend paying or not). Using PE ratio, and in particular a singular value of PE ratio, as a measure of value to support investment decisions, isn't necessarily likely to produce optimum portfolio performance. IMHO anyway
yeah this isn't talked about enough...
the market PE used to be 15ish and people still think of that as 'fairly valued.'
that was when financials and industrials made up the bulk of the market... and those industries typically have lower PEs
Now the market PE is 20-23ish. And many say 'don't buy it's too expensive.'
But a big reason for this 'expensiveness' is because tech and comms stocks now make up 30-40% of the index, and these industries tend to have high PEs for a lot of valid reasons.
If you want to have a portfolio of stocks with 15 PEs you can...they are out there...but the SP500 as a whole will have a higher PE because of all the tech. And it's not completely accurate to say the market is broadly overvalued because of this underlying change in the composition of the index.
I can only speak for myself, but I don't ignore metrics like the P/E and I don't consider it in isolation to other things, either. Rather, I consider a company's P/E relative to its peers, its sectors avg. P/E, and to it's historical valuations. Then look at how it fared in terms of stock performance when it was similarly over, under, or fairly valued.
With that said, the big tech have been over-valued for almost forever, and this seems to be only part of their story. And I think there are more important things to consider, for that matter. But it isn't ignored, either.
Tech is the growth sector. Not value. Risk and expectation are vastly different between Growth and value. And each may be expected to outperform at various stages of a cycle. Same with small caps. Truly. And it usually works. I could site examples, but you probably know that already.
The CORP and LQD lost as much as 20%- 25% of their value during the 2020 downturn. The Short term bond fund, VCSH, on the other hand, only lost half as much.
If looking for a defensive edge to your portfolio, I would think that the VCSH is a better option.
It does have a smaller yield, but it also has lower management fee, so those factors probably cancel themselves out.
I guess it does make sense to diversify across both long and short terms, though.
yes, when rates rise fast, LQD and CORP will get hammered very badly. During the great rate rise I owned virtually no bonds but VCSH, for that reason...probably the best allocation investment decision I made in the last 20 years.
Now is different...CORP and LQD are yielding over 5% so there is a much larger margin of error now. Hard to see rates going much higher.
The weird thing about an inverted curve is that VCSH, short term bonds, yields more than these two funds, which own longer term bonds. So I own all three...I figure rates on longer term bonds are likely to fall, and CORP and LQD should benefit more than VCSH should rates fall across the curve.
But you have to be careful when defining 'defensive.' If there is a standard recession, rates will fall, and for every one percent fall in rates LQD will gain 8%, while VCSH might rise only 3%. So which is the defensive play? Tricky stuff.
I've been looking seriously at a few of the high yield ETFs with a current income bias, and a few that might be of interest: JEPI, PFF, and SDIV. They are equity based, not bonds.
They are riskier for sure, but have higher yields, in excess of 7%.
the market PE used to be 15ish and people still think of that as 'fairly valued.'
that was when financials and industrials made up the bulk of the market... and those industries typically have lower PEs
Now the market PE is 20-23ish. And many say 'don't buy it's too expensive.'
But a big reason for this 'expensiveness' is because tech and comms stocks now make up 30-40% of the index, and these industries tend to have high PEs for a lot of valid reasons.
If you want to have a portfolio of stocks with 15 PEs you can...they are out there...but the SP500 as a whole will have a higher PE because of all the tech. And it's not completely accurate to say the market is broadly overvalued because of this underlying change in the composition of the index.
I can only speak for myself, but I don't ignore metrics like the P/E and I don't consider it in isolation to other things, either. Rather, I consider a company's P/E relative to its peers, its sectors avg. P/E, and to it's historical valuations. Then look at how it fared in terms of stock performance when it was similarly over, under, or fairly valued.
With that said, the big tech have been over-valued for almost forever, and this seems to be only part of their story. And I think there are more important things to consider, for that matter. But it isn't ignored, either.
Tech is the growth sector. Not value. Risk and expectation are vastly different between Growth and value. And each may be expected to outperform at various stages of a cycle. Same with small caps. Truly. And it usually works. I could site examples, but you probably know that already.
If a higher PE becomes the new norm, and valuations are less relevant in recent years, why is that? All finance has been turned on it head? Not so in recent CRE transactions.
It appears many have confidence in the Government’s deficit spending, and the ability of the Fed and Treasury to finance. Then one should also expect their investments are constantly being watered down, and perhaps by design. That is the argument in favor of Bitcoin. Likewise the growth of the Total Public Debt of $9 Trillion in 2007 to $34 Trillion today should be an indicator of how much pubic markets have been managed by the Government. A comparison of the growth in the S&P 500 from 1,575 in October 2007 to just under 4,900 today, should be juxtaposed against the manipulation of interest rates and liquidity.
Intentional or not, there should be less reliability in fake markers. I refer to it as a Chinese economic model, the massaging market variables, increasingly complex, to generate an outcome. Recently we have seen there is a downside to this, even in China. Today, with the backup in valuation, I would rather be invested in the Hang Seng over the S&P 500. In the United States at least some measure of inflation is imbedded into the future, for example Social Security CPI adjustments. Both markets are not capitalism, a free market, at least not in the pre-Financial Crisis sense, if that gives one confidence. This is the main reasons I prefer EM Bond CEFs where the valuation discount and yield gives one a buffer on risk.
I can only speak for myself, but I don't ignore metrics like the P/E and I don't consider it in isolation to other things, either. Rather, I consider a company's P/E relative to its peers, its sectors avg. P/E, and to it's historical valuations. Then look at how it fared in terms of stock performance when it was similarly over, under, or fairly valued.
With that said, the big tech have been over-valued for almost forever, and this seems to be only part of their story. And I think there are more important things to consider, for that matter. But it isn't ignored, either.
Tech is the growth sector. Not value. Risk and expectation are vastly different between Growth and value. And each may be expected to outperform at various stages of a cycle. Same with small caps. Truly. And it usually works. I could site examples, but you probably know that already.
If a higher PE becomes the new norm, and valuations are less relevant in recent years, why is that? All finance has been turned on it head? Not so in recent CRE transactions.
It appears many have confidence in the Government’s deficit spending, and the ability of the Fed and Treasury to finance. Then one should also expect their investments are constantly being watered down, and perhaps by design. That is the argument in favor of Bitcoin. Likewise the growth of the Total Public Debt of $9 Trillion in 2007 to $34 Trillion today should be an indicator of how much pubic markets have been managed by the Government. A comparison of the growth in the S&P 500 from 1,575 in October 2007 to just under 4,900 today, should be juxtaposed against the manipulation of interest rates and liquidity.
Intentional or not, there should be less reliability in fake markers. I refer to it as a Chinese economic model, the massaging market variables, increasingly complex, to generate an outcome. Recently we have seen there is a downside to this, even in China. Today, with the backup in valuation, I would rather be invested in the Hang Seng over the S&P 500. In the United States at least some measure of inflation is imbedded into the future, for example Social Security CPI adjustments. Both markets are not capitalism, a free market, at least not in the pre-Financial Crisis sense, if that gives one confidence. This is the main reasons I prefer EM Bond CEFs where the valuation discount and yield gives one a buffer on risk.
The actions taken by the Fed in support of establishing a stable and enduring economy will and do impact markets, the publicly traded companies' balance sheets comprising the market, and the investors access to funds in which to trade.
Is this their intent? I don't think it is the primary intent, but it is certainly a consequence.
If you feel that they are creating a precipitous situation for the markets, invest accordingly.
If, however, that approach has not been working for you, you may want to reconsider.
If a higher PE becomes the new norm, and valuations are less relevant in recent years, why is that? All finance has been turned on it head? Not so in recent CRE transactions.
It appears many have confidence in the Government’s deficit spending, and the ability of the Fed and Treasury to finance. Then one should also expect their investments are constantly being watered down, and perhaps by design. That is the argument in favor of Bitcoin. Likewise the growth of the Total Public Debt of $9 Trillion in 2007 to $34 Trillion today should be an indicator of how much pubic markets have been managed by the Government. A comparison of the growth in the S&P 500 from 1,575 in October 2007 to just under 4,900 today, should be juxtaposed against the manipulation of interest rates and liquidity.
Intentional or not, there should be less reliability in fake markers. I refer to it as a Chinese economic model, the massaging market variables, increasingly complex, to generate an outcome. Recently we have seen there is a downside to this, even in China. Today, with the backup in valuation, I would rather be invested in the Hang Seng over the S&P 500. In the United States at least some measure of inflation is imbedded into the future, for example Social Security CPI adjustments. Both markets are not capitalism, a free market, at least not in the pre-Financial Crisis sense, if that gives one confidence. This is the main reasons I prefer EM Bond CEFs where the valuation discount and yield gives one a buffer on risk.
The actions taken by the Fed in support of establishing a stable and enduring economy will and do impact markets, the publicly traded companies' balance sheets comprising the market, and the investors access to funds in which to trade.
Is this their intent? I don't think it is the primary intent, but it is certainly a consequence.
If you feel that they are creating a precipitous situation for the markets, invest accordingly.
If, however, that approach has not been working for you, you may want to reconsider.
Perhaps you should reconsider your investments are not as reliable as you believe, and certainly are not as immune from asset inflation as you infer.
The actions taken by the Fed in support of establishing a stable and enduring economy will and do impact markets, the publicly traded companies' balance sheets comprising the market, and the investors access to funds in which to trade.
Is this their intent? I don't think it is the primary intent, but it is certainly a consequence.
If you feel that they are creating a precipitous situation for the markets, invest accordingly.
If, however, that approach has not been working for you, you may want to reconsider.
Perhaps you should reconsider your investments are not as reliable as you believe, and certainly are not as immune from asset inflation as you infer.
The thing is, though, when you build up enough "unrealized gains" in a portfolio, you have a buffer to withstand varying degrees of a downturn. I'm prepared to cash out if need be and to do so before all the unrealized gains are gone. That is the benefit of building a position over time, esp. one that has appreciated steadily and sufficiently.
Yes, it is at risk. Point well taken in that regard.
My post is making the rational point that if you accept an elevated PE as the new norm or valuation are less relevant today than in the past, that should be balanced against what has changed. One can look at housing and see how low interest rates and liquidity translated to higher sale prices, I.e. buying a payment. But in turn with rising rates it has lead to less turnover and a somewhat constricted market, relative to the recent past anyway.
I don't think it is less relevant today than it was in the past. I didn't think it was the sole determinant then, either. Investors were willing to pay a premium for elevated P/Es for quite a while now and that trend has continued, at least within certain sectors.
P/E valuations do not determine stock performance. What determines that is many factors all of which get filtered through investor's willingness to pay for it in the field of other investment options or lack thereof.
Maybe you feel that in the end valuation will correct and we will all learn our lessons. If that is to be the case, it's taking a really long time and a hell of a lot of once in a lifetime opportunities have come and gone....
I say that because those that rode this thing up will have opportunities to sell on the way down, if that were ever to happen. Or they already reaped hellacious profits along the way.
“Texas Instruments is one of the largest semiconductor cos. & certainly has the broadest exposure (unlike NVDA or INTC), with "well over 100,000 customers" & 80,000 different products. Six consecutive qtrs. of Y/Y rev. drops. Order cancelations continued at an "elevated" level.”
“Belief we're in "Goldlilocks" economy with improving growth & becalmed inflation is pure malarky. More likely global recession with structural inflation. 3 mos. ago, TXN stock was low-140s. In interim, momos pushed it to 176 heading into this miserable report. Stupidity reigns”
'By keeping bill issuance high, Treasury is able not only to counteract the QT performed by the Fed but also to force the Fed to taper QT. This is an abomination: monetary policy under the control of fiscal authorities.'
“Texas Instruments is one of the largest semiconductor cos. & certainly has the broadest exposure (unlike NVDA or INTC), with "well over 100,000 customers" & 80,000 different products. Six consecutive qtrs. of Y/Y rev. drops. Order cancelations continued at an "elevated" level.”
—Fred Hickey
Oh, wow! It reported earnings after hours and the news was so bad that it's price dropped to where it was late last week. Not too earthshattering.
But speaking of earthshattering, did you see Netflix?! Announced their earnings today and stock pops more than 8%. What's your buddy Fred Hickey have to say about that?
"In 2008, Amazon, which was considered to be an invincible, high-growth stock, fell 61% in two months." Yet, he fails to disclose since that time AMZN has gone from $3 a share to $156 a share.
He said in May of last year we should expect a major recession. The market would have a huge recession and the "run on big tech stocks like NVDA and AAPL is extremely dangerous." How much is NVDA up since then? For some reason he is big on gold.
Fred Hickey, editor of the investment bulletin «The High-Tech Strategist», warns that the stock market is headed for trouble. In this in-depth interview he explains why he thinks the current run on big tech stocks like Apple...
"In 2008, Amazon, which was considered to be an invincible, high-growth stock, fell 61% in two months." Yet, he fails to disclose since that time AMZN has gone from $3 a share to $156 a share.
He said in May of last year we should expect a major recession. The market would have a huge recession and the "run on big tech stocks like NVDA and AAPL is extremely dangerous." How much is NVDA up since then? For some reason he is big on gold.
These Permabears are just about always wrong with their predictions and do they follow up and say they were wrong? Of course not, they simply prognosticate more doom and gloom.
Albert Edwards @albertedwards99 Michael Wilson of Morgan Stanley warns of a big eps shock "Our work shows further erosion in earnings, with the gap between our model and the forward estimates as wide as it's ever been. The last two times our model was this far below consensus, the S&P 500 fell by 34% and 49%."
As late as June 2023 Morgan Stanley thought SPX earnings would be $185. Factset says they will likely be $218. Again, this prediction was made just 7 months ago. They thought somehow we were about to fall off a cliff. What were they looking at?
Carl Quintanilla @carlquintanilla “.. Morgan Stanley anticipates that S&P 500 earnings per share will come in at $185 ..” 👀
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