On Wednesday, I downloaded basic data of all NYSE stocks from the WSJ for the close of trading on June 20th.
I was surprised to find that the data showed 550 stocks out of 2083 companies - over 25% - with no data for P/E ratios, meaning that these companies had lost money over the preceding 12 months.
The remaining 1,533 stocks have an average P/E ratio of 41.5!
The median P/E is 21.6, since this distribution is skewed to the "right" with a zero lower bound. Therefore, I took a "trimmed mean" measurement of the P/E ratios by cutting off the top and bottom 2.5% stocks.
This left 1455 stocks, and these stocks had an average P/E ratio of 29.5, or an earnings yield (E/P) of 3.5%.
Damodaran shows a historical equity risk premium of anywhere from 4.62% to 2.30%, based on the geometric average stock return compared to Treasury bonds. Currently, 10-year US Treasury yield is fluctuating around 2.3%.
2.3% + 2.3% = 4.6% = 21.7 P/E (Lowest Equity Risk Premium)
2.3% + 4.62% = 6.92% = 14.5 P/E (Highest Equity Risk Premium)
Remember, these figures do not included 550 stocks that lost money over the last year, which would lower the aggregate earnings of an equally weighted index - that is, the "E" in P/E - thereby making the P/E ratio even more expensive.
This data shows that stocks on average are expensive, especially on an equally weighted basis. A possible trade to research is long cap-weighted "value" stocks (low P/E companies) and short equal-weighted indexes, which have a high P/E in aggregate.
Disclosure: I/we have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.
I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.