Feb 28, 2019
Stock market valuations are more attractive today than they were one year ago.
The Price-to-Earnings ratio (P/E) for the S&P 500 is presently 18x, below the average of 19.3x since 1995 – a period over which stocks delivered nearly 10% average returns. It is also 18% lower than the level at the start of 2018. Other areas of the equity markets likewise have seen valuations improve. The P/E for small cap stocks fell from nearly 30x twelve months ago to 21x today. Foreign stocks have fallen from 17x to 14x and are presently near the lowest level since the 2008 financial crisis.
More attractive valuations are the result of lower stock prices following the 2018 market decline, as well as continued strong earnings for corporations. With 90% of S&P 500 companies reporting full year earnings for 2018, the average growth rate is 11%, which is 3% ahead of analyst expectations. Strong corporate results have been a defining feature of this bull market. In spite of uncertainty from Washington, geopolitics, and the Federal Reserve, businesses have found ways to grow profits and increase their net worth.
While we wouldn’t argue that U.S. stocks are bargain basement cheap – after all we are 10 years into an economic expansion – investors should feel confident about investing in stocks at today’s improved valuation levels.
DISCLAIMER: Past performance does not predict future results. This report is based on data obtained from sources we believe to be reliable. Hefren-Tillotson does not, nor any other party, guarantee the accuracy or completeness of this report or make any warranties regarding results obtained from its usage. All opinions and estimates included in this report constitute the firms judgment as of the date of this report and are subject to change without notice. This report is for informational purposes only and is not intended as an offer or solicitation to buy or sell the securities herein mentioned.