Stock Market Briefing:
Valuation Models
Yardeni Research, Inc.
July 12, 2017
Dr. Edward Yardeni
516-972-7683
[email protected]
Joe Abbott
732-497-5306
[email protected]
Mali Quintana
480-664-1333
[email protected]
Please visit our sites at
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thinking outside the box
Table Of Contents
Table Of Contents
Bulls & Bears
Rules of 20
Valuation Models
S&P 500 Index & Forward Earnings
July 12, 2017 / Stock Market Briefing: Valuation Models
1
2
3
4-5
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Bulls & Bears
Figure 1.
5
30
S&P 500 FORWARD P/E & INVESTORS INTELLIGENCE BULL/BEAR RATIO
S&P 500 Forward P/E* (17.4)
4
25
Investors Intelligence
Bull/Bear Ratio (2.8)
3
20
7/4
7/7
2
15
1
10
0
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5
88 89 90 91 92 93 94 95 96 97 98 99 00 01 02 03 04 05 06 07 08 09 10 11 12 13 14 15 16 17 18 19 20
* Average weekly price divided by 52-week forward consensus expected operating earnings per share. Monthly through April 1994, then weekly.
Source: Standard & Poor’s Corporation, Thomson Reuters I/B/E/S, and Investors Intelligence.
Figure 2.
175
30
S&P 500 FORWARD P/E & CONSUMER COMFORT INDEX
170
S&P 500 Forward P/E* (17.4)
165
25
Consumer
Comfort Index** (146.0)
160
155
20
150
7/7
145
15
140
135
10
130
125
120
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95
96
97
5
98
99
00
01
02
03
04
05
06
07
08
09
10
11
12
13
14
15
16
17
18
19
20
* Average weekly price divided by 52-week forward consensus expected operating earnings per share.
** Index plus 100
Source: Standard & Poor’s Corporation, Thomson Reuters I/B/E/S, and BloombergBusiness.
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Rules of 20
Figure 3.
14
14
S&P 500 FORWARD P/E & RULE OF 20 P/E BASED ON CPI INFLATION RATE
12
12
20 minus Consumer Price Index
(yearly percent change) Minus S&P 500 P/E
10
10
8
8
6
6
4
4
2
2
May
0
0
-2
-2
-4
-4
-6
-6
-8
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-8
79 80 81 82 83 84 85 86 87 88 89 90 91 92 93 94 95 96 97 98 99 00 01 02 03 04 05 06 07 08 09 10 11 12 13 14 15 16 17 18 19 20
* P/E = price-to-earnings ratio using mid-month price and 12-month forward consensus earnings expectations.
Source: Thomson Reuters I/B/E/S and Bureau of Labor Statistics.
Figure 4.
28
26
28
S&P 500 FORWARD P/E & P/E BASED ON RULE OF 20 USING 10-YEAR TREASURY YIELD
(weekly)
26
24
24
22
22
20
20
18
18
7/7
7/7
16
16
14
14
12
S&P 500 Forward P/E* (17.4)
12
10
20 minus Ten-Year Treasury Yield (17.6)
10
8
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94
95
96
8
97
98
99
00
01
02
03
04
05
06
07
08
09
10
11
12
13
14
15
16
17
18
19
20
* Price divided by 52-week forward consensus expected operating earnings per share.
Source: Thomson Reuters I/B/E/S and Federal Reserve Board.
Page 2 / July 12, 2017 / Stock Market Briefing: Valuation Models
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Valuation Models
Figure 5.
25
25
S&P 500 INDEX
P/E* (17.8)
20
20
LTEG** (12.9)
Jun
15
15
10
10
5
1.8
5
1.8
S&P 500 PEG RATIO
1.6
1.6
PEG*** (1.4)
1.4
Jun
1.4
1.2
1.2
1.0
1.0
.8
.6
.8
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.6
85 86 87 88 89 90 91 92 93 94 95 96 97 98 99 00 01 02 03 04 05 06 07 08 09 10 11 12 13 14 15 16 17 18 19 20
* P/E = price-to-earnings ratio using mid-month price and 12-month forward consensus earnings expectations.
** LTEG = consensus median 5-year expected earnings growth.
*** PEG = P/E divided by LTEG.
Source: Thomson Reuters I/B/E/S.
Figure 6.
2.5
2.5
TOBIN’S Q FOR NONFINANCIAL CORPORATIONS*
(ratio)
2.0
2.0
Actual Q (1.04)
1.5
Adjusted Q** (1.45)
Q1
Q1
1.0
.5
.0
1.5
1.0
.5
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.0
52 54 56 58 60 62 64 66 68 70 72 74 76 78 80 82 84 86 88 90 92 94 96 98 00 02 04 06 08 10 12 14 16 18 20 22
* Ratio of the market value of equities to the net worth of corporations including real estate and structures at market value and equipment, intellectual
property products, and inventories at replacement cost.
** Actual divided by average since 1952.
Note: Shaded red areas denote S&P 500 bear market declines of 20% or more. Yellow areas show bull markets.
Source: Federal Reserve Board Financial Accounts of the United States.
Page 3 / July 12, 2017 / Stock Market Briefing: Valuation Models
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S&P 500 Index & Forward Earnings
Figure 7.
370
360
350
340
330
320
310
300
290
280
270
260
250
240
230
220
210
200
190
180
170
160
150
140
130
120
110
100
90
S&P 500 COMPOSITE vs. S&P 500 BOTTOM UP FORWARD OPERATING EARNINGS EPS
(weekly data Indexed to week of March 9, 2009)
7/5
S&P 500 Index
Forward Earnings
7/6
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2009
2010
2011
2012
2013
2014
2015
2016
2017
2018
2019
370
360
350
340
330
320
310
300
290
280
270
260
250
240
230
220
210
200
190
180
170
160
150
140
130
120
110
100
90
2020
Source: Standard & Poor’s Corporation and Thomson Reuters I/B/E/S.
Figure 8.
2400
2300
2200
2100
2000
1900
1800
1700
1600
1500
1400
1300
1200
1100
1000
900
800
700
600
500
400
300
200
100
0
S&P 500 COMPOSITE vs. S&P 500 BOTTOM UP FORWARD OPERATING EARNINGS EPS
Jun
(indexed to Sept 1978)
S&P 500 Index
Forward Earnings
Jun
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2400
2300
2200
2100
2000
1900
1800
1700
1600
1500
1400
1300
1200
1100
1000
900
800
700
600
500
400
300
200
100
0
7879 80 81 82 83 84 85 86 87 88 89 90 91 92 93 94 95 96 97 98 99 00 01 02 03 04 05 06 07 08 09 10 11 12 13 14 15 16 17 18 19 20
Source: Standard & Poor’s Corporation and Thomson Reuters I/B/E/S.
Page 4 / July 12, 2017 / Stock Market Briefing: Valuation Models
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S&P 500 Index & Forward Earnings
Figure 9.
600
600
S&P 500 COMPOSITE vs. S&P 500 BOTTOM UP FORWARD OPERATING EARNINGS EPS
(weekly data Indexed to month end March 1994)
7/12
500
500
7/6
S&P 500 Index
Forward Earnings
400
400
300
300
200
200
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100
94
95
96
97
98
99
00
01
02
03
04
05
06
07
08
09
10
11
12
13
14
15
16
17
18
19
100
20
Source: Thomson Reuters I/B/E/S.
Page 5 / July 12, 2017 / Stock Market Briefing: Valuation Models
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