S&P 500 Valuation: Now Trading At 16x Cash-Flow
Brian Gilmartin | Apr 20, 2021 02:22AM ET
S&P 500 sentiment is far too bullish, while breadth is not.
The bullish sentiment has been well documented and should make investors somewhat nervous, but the fact is market breadth, which has been talked about on Twitter for those that use the forum, is actually quite bullish.
Source: Bespoke Report
As Bespoke notes, with 90% of the S&P 500 trading above their respective 50-day moving averages, “forward returns” are quite positive after this anomaly.
Read the entire Bespoke note, It’s worth the time.
Source: Bespoke
This page, one from the Bespoke Report from Friday, 4/16/21 talks about the advance / decline line moving in lockstep with the S&P 500. The third graph at the bottom continues to indicate that Fed’s Financial Stress index should be close to zero.
JP Morgan’s Long-Term Valuation Measures:
The data source for the above is JP Morgan’s Guide to the Market and it’s page five of S&P 500 Valuation Measures
The Guide to the Market team, which is part of JP Morgan’s Global Markets Insights Strategy Team, publishes one of the best market and economic updates on the first day of every quarter.
This page copied above, has been tracked sequentially so readers can see how the data changes quarter-to-quarter. (Ignore the wandering cursor. It’s like the proverbial lazy eye—it wanders everywhere. On the above spreadsheet it landed on the PE standard deviation cell. That valuation metric is not being highlighted for any particular reason.)
Get The News You Want
What is worrisome: check the cash-flow valuation of the S&P 500 per the spreadsheet. Only this page in JP Morgan’s “Guide” and Blackrock’s Rick Rieder’s monthly bond market call ever give any kind of cash-flow valuation metrics on the S&P 500. PE, yes constantly, PB (price-to-book), yes particularly with banks, and yes individual companies you will see cash-flow or free-cash-flow metrics, but rarely with the S&P 500.
Summary / Conclusion: Josh Brown was on CNBC this week, in one of his daily 3 pm slots, and he talked about how if you are a professional investor, and you’re short the S&P 500 or have been sitting in cash in this market, that maybe this isn’t the career for that kind of a person. Like all of Josh’s appearances, it was humorous and entertaining and also was pretty much accurate.
However, it’s hard not be a nervous long in this market today.
Bespoke’s “breadth” data and the analysis of “forward returns” around that data, I thought was worth showing to readers. The data makes a bullish case, as Tom Lee has done for the last 8 months
It can be rationalized many different ways—Fed liquidity, Congressional stimulus, S&P 500 earnings and revenue growth (which this blog takes a stab at every week) but the fact is 2021 could be another year of double-digit returns for the S&P 500, despite the record run the US stock market has had already.
An S&P 500 at 16x cash-flow is noteworthy though. SPAC’s have taken gas, and it’s actually healthy to see some speculative areas within the market—like the Russell 1000 Growth stocks—start to pullback and correct. Updating the Top 10 client holdings for readers in early April ’21, the financial overweight, the Invesco S&P 500® Equal Weight ETF (NYSE:RSP) or equal-weight S&P 500 and the Emerging Markets positioning are all non-momentum positions balancing the Tech weight in client accounts.
It will be interesting to see if the Top 5–6 names in the S&P 500 resume their leadership mantle when most report in the last week of April ’21.
Writing about the market helps alleviate the anxiety of waiting on and then enduring the inevitable correction.
Trading in financial instruments and/or cryptocurrencies involves high risks including the risk of losing some, or all, of your investment amount, and may not be suitable for all investors. Prices of cryptocurrencies are extremely volatile and may be affected by external factors such as financial, regulatory or political events. Trading on margin increases the financial risks.
Before deciding to trade in financial instrument or cryptocurrencies you should be fully informed of the risks and costs associated with trading the financial markets, carefully consider your investment objectives, level of experience, and risk appetite, and seek professional advice where needed.
Fusion Media would like to remind you that the data contained in this website is not necessarily real-time nor accurate. The data and prices on the website are not necessarily provided by any market or exchange, but may be provided by market makers, and so prices may not be accurate and may differ from the actual price at any given market, meaning prices are indicative and not appropriate for trading purposes. Fusion Media and any provider of the data contained in this website will not accept liability for any loss or damage as a result of your trading, or your reliance on the information contained within this website.
It is prohibited to use, store, reproduce, display, modify, transmit or distribute the data contained in this website without the explicit prior written permission of Fusion Media and/or the data provider. All intellectual property rights are reserved by the providers and/or the exchange providing the data contained in this website.
Fusion Media may be compensated by the advertisers that appear on the website, based on your interaction with the advertisements or advertisers.