Market P/E Still Inexpensive Given Tax And Inflation Context; +10% To 25% U.S. Equities Upside Remains
- The U.S.' current market earnings multiple of 18x is commonly seen as expensive when compared to the 15x-17x historical average.
- Investors need to consider the effect of the tax and inflation environments on the markets.
- During prior periods with similar tax and inflation environments, the market P/E ranged from 20x to 22x - indicating more upside still for the U.S.
The S&P 500 Not Overvalued, Still Undervalued Given ROA Strength Of USA Corporates
- Aggregate US Corporate Profitability, as measured by Adjusted Return On Assets (ROA) Is Highest in 60+ Years.
- US Corporate ROA's hit new highs in 2012 and 2013, now exceeding those levels in 2014.
- Underlying corporate management activities and discipline, including low corporate investment growth, supports continued - not a short-lived - ROA peak.
- The notion of "reversion to the mean" from peak levels is important if viewed in context. There is danger in calling for a reversion before it begins.
- A higher corporate ROA supports higher market valuations, making the market specifically NOT overvalued and more likely still undervalued.
- At S&P 1600, Prices Embed High ROIs, Low Growth - Exactly What Firms Plan To Do, Nothing More
- Be Careful Shorting A Market With Corporate ROIs Near All-Time Highs
- U.S. Equity Optimism From A Virtuous Cycle Of Credit Worthiness
From 660 To 390: Not Sufficient, But Necessary Fuel For A Sustainable Bull Market
Editors' Pick • Apr. 10, 2013 • 30 Comments