Seven years into a bull run and stocks are undeniably expensive. FactSet Research finds that every sector but one is trading above its five- and ten-year average price-to-earnings ratio on a forward basis. There’s good reason for higher P/E ratios, stock prices keep rising even as the companies in the S&P 500 have reported five consecutive quarters of lower earnings. As investors rush in to send the market to new highs, their share of earnings is getting smaller. #-ad_banner-#And stocks may be set to get even more expensive throughout the rest of the year. Analysts expect earnings to decline for… Read More
Seven years into a bull run and stocks are undeniably expensive. FactSet Research finds that every sector but one is trading above its five- and ten-year average price-to-earnings ratio on a forward basis. There’s good reason for higher P/E ratios, stock prices keep rising even as the companies in the S&P 500 have reported five consecutive quarters of lower earnings. As investors rush in to send the market to new highs, their share of earnings is getting smaller. #-ad_banner-#And stocks may be set to get even more expensive throughout the rest of the year. Analysts expect earnings to decline for a sixth straight quarter when reports start coming out in October. The question is, how much more expensive can stocks get before investor enthusiasm starts to crumble? Is there any value left in the market? How Much More Expensive Can Stocks Get? Companies in the S&P 500 are trading at a 20% premium to the average 10-year forward P/E multiple. Nine of the ten sectors in the index trade above their five- and ten-year average multiples with premiums on 10-year multiples ranging from 24.6% (consumer staples) to 7% (information technology). Investors will need to remain exuberantly optimistic if the… Read More