The outcome of the S&P 500 (^ GSPC) was close to 30% last year under major expansion, adding significantly above its historic average.
An increase in stock prices, in the absence of growth, leaves investors at the margins, leading to questions being over-valued and due to be corrected.
But as Jeff Schulze, ClearBridge's investment strategist, explained to Yahoo Finance, current valuations may not be as stretched as they are on the surface.
“You look at the 11 final economic cycles and market multiples you saw at the peak of these cycles, compare this market multiplier to the average five years before that peak, (a) on average You have seen multiple market premiums compared to the five-year average of about 25%, ”Schulze said. “Today we only trade a small premium of 6%. Therefore, this would suggest that multiples may extend further from here. ”
Schulze's assessment was in line with the market assigned to other multi-premium businesses for the S&P 500.
The 12-month price-to-earnings (PE) ratio for the S&P 500 was 18.4 from January, according to FactSet, coming well above the 10-year average of 14.9. However, this premium is significantly narrower compared to an estimated 5-year PE estimate of 16.7 for S&P 500, based on FactSet data.
Further expansion will emerge as investors move out of the ditch and the equity shares, Schulze said. The long-term prospect of attracting investors back into stocks, as phase one is signed between the US and China, is optimistic and due to the clarity of other geopolitical events such as Brexit, he added. with it.
“Although we had a great year in the market last year, investors did not take part,” said Schulze. “If you look at investors' flows, you saw that there was a huge inflow in bond and money market funds about $ 870 billion. You have seen net outflows of global $ 215 billion equity funds. The net difference between the two is $ 1.1 trillion, the largest in the financial market history. ”
In the absence of a downturn, “there will be a bit of a FOMO” – or a fear of losing more returns – “and investors will return to the equity markets and you could see an expansion here,” he said.
“But also if markets continue to melt higher, people feel better about the economy, generally speaking markets – and you now have $ 3.6 trillion cash markets,” he said. “It's again until all the time we have been before.”
And as Schulze said, this leaves dry powder waiting to work.
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