Are market valuations becoming compelling?

Dick Green in writes:

Valuations on stocks are improving with little fanfare.

The price/earnings (P/E) multiple on the S&P 500 will drop to just 15.8 through the third quarter on operating earnings.

On as-reported earnings, the P/E will drop to about 17.9.

It can be argued that these P/Es are high relative to historical standards, but they are very low for the current interest rate environment. Most models assess stocks as very undervalued.

The S&P 500 is a large cap index. Dimitra Defotis in weighs in on small-cap value stocks stating that their valuations, in contrast, look stretched.

Value stocks in the Russell 2000 index, a benchmark for small stocks, have done twice as well as the Standard & Poor’s 500 has over the last 24 months.

And over the past decade small-cap value stocks are up an eye-popping 168%, easily outpacing the S&P’s 103% advance and the Russell 2000 Growth index’s mere 44% gain.

So, not surprisingly, some small value stocks are starting to look pricey.

Valuations are only part of the puzzle. Frankly in light of the events of the past couple months, it is surprising that the overall market is not lower. It will be interesting to see if a broad-based market rise can occur without small-cap participation.

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