03/03/17

"Last Time US Stocks Were So Expensive, This Happened" [feedly]



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"Last Time US Stocks Were So Expensive, This Happened"
// Zero Hedge

By Nicholas Colas of Convergex

Last Time US Stocks Were So Expensive, This Happened

Summary: The best argument for avoiding US stocks is simple: valuation.  Using the Shiller PE Ratio (price divided by a 10 year lookback at earnings), domestic equities trade for 29.9x earnings versus a long run average of 16.7x.  The last time they were this expensive was early 2002, or 15 years ago.  So how have they done since?  The S&P 500 has appreciated 116% (a 5.3% CAGR) since February 2002 on a price basis.  With dividends reinvested, that return jumps to 175% (a 7.1% CAGR).  Not bad, but not the 9.5% average return from 1928 – 2016 either.  As for how we got here, look to Consumer Discretionary (up 197% on a price basis), Health Care (+172%) and Energy (+170%).  The largest drag was Financials, up only 10.0% since February 2002.  But if the long term is a pretty good story, consider that 1) equities were down 22.0% in 2002 and 2) part of the appreciation over the last 15 years is due to exceptionally low long term interest rates.  To get a similar outcome over the next 15 years, earnings growth may be the only driver.

According to the US Government, I will live to the ripe old age of 82.4 years.  If I can make to age 62, however, that buys me 3 more years and I will ....

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