The Lehmann Letter (SM)
The stock market was down at the opening this morning, but remains near record highs.
See E. S. Browning’s article in this morning’s Wall Street Journal for an excellent discussion of the outlook:
“Expect More Volatility With Stocks Priced Near Perfection”
Mr. Browning discusses valuations and begins as follows:
“One reason stocks were so troubled last week is that they are getting closer to what Wall Street, in its inimitable slang, calls being “priced for perfection.”
“Priced for perfection, unfortunately, doesn’t mean attractive. It means that stock prices are so high that gains depend on a very favorable investing environment, with strong corporate profits, low interest rates, low inflation and continued global growth.
“If the environment starts looking less favorable, stocks can weaken, as they did last week.
“Stocks probably aren’t completely priced for perfection yet, money managers say, but they are moving that way. The S&P 500 stock index closed Friday at 19.4 times its companies’ net profits for the past 12 months, well above its long-term average of 15.5, according to Birinyi Associates…..”
See the remainder of the article as well as the chart and table below for historical perspective.
Price / Earnings Ratio
Price / Earnings ratio (12-month trailing actual earnings) for S&P 500.
Q I 17.89
Q II 17.66
Q III 17.82
Q IV 18.45
Q I 19.66
The ascent becomes more difficult as the P/E climbs to 20/1.
(To be fully informed visit http://www.beyourowneconomist.com/)
© 2014 Michael B. Lehmann