Another shorter than normal linkfest today. Today we are going to take a quick look at market valuations. In no particular order:
The Mad Hedge Fund Trader is sick of all the talk about market multiples. Bullish market models aside he notes that the market has (and can) trade at single digit-P/E ratios for long periods of time.
Eddy Elfenbein at Crossing Wall Street has a much talked about post up showing the Dow Jones Industrials with a higher dividend yield than that on the 10-year Treasury note.
Felix Salmon at Reuters notes that the previous data does indicate that equities are becoming more attractive relative to bonds. However that does not mean that both asset classes aren’t currently overvalued.
Vincent Fernando at The Money Game highlights a model comparing the valuation of the S&P 500 against A-rated corporate bonds. This model shows stocks to be at a multi-decade low against corporate bonds.
The Buttonwood column at The Economist this weeks notes the absolutely dismal performance of equities this past decade and notes that the equity markets are still working off “valuation excesses.” They highlight the yield on global pharmaceutical stocks as a potential opportunity.
Using a bottoms-up earnings estimate model Ticker Sense has the S&P 500 earning $81.71 in 2010 which leaves it trading at a 12.5 P/E ratio.
Chad Brand at the Peridot Capitalist notes how this P/E ratio would be the lowest on record since 1989.
Doug Short at dshort.com has updated some longer-term charts that show the market to still be overvalued. Based on either the Q-ratio of CAPE the S&P 500 remains stretched.
If you take a look at the Morningstar Market Fair Value chart you can see they show their equity universe to be about 10% undervalued. Consistent with levels seen about at year ago. However you should also note that the equity market can become significantly more undervalued as was the case in much of 2007-2008.
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