The dip was brief and shallow. Here we are again, with the NASDAQ pressing gains above 6,100 — led by tech. There are some out there who are scared of valuations, people craven with suggestions that the ‘end is near’ because we’re so overvalued.
It is true, or FAKE NEWS?
I’ll delve into some of the valuation data in Exodus to illuminate the truth.
The current median PE for the market is 22x, down from 23x in 2015.
The median PE for tech is 28x, a 26% premium above the overall market PE. More or less, this has been the norm since the financial crisis ended in 2009.
The median PE for basic materials is trading at a premium to the overall market for the second year in a row. The only two times this has occurred, in recent years, was 2008 and 2010. Basic materials usually trade at a much lower PE.
Financials are trading at their lowest PEs since 2014, at 19.5x.
Healthcare PEs took off in 2011, and have been above 25x since 2012. The last time they were this high was 2005 (24X), just before a 5 year contraction period.
Bottom line: PEs have been elevated since 2011. Earnings growth have been matching the multiple expansions — creating very few outliers. While one could argue that tech trading at 28x is fucking ridiculous, it has been this way since 2011 — so why chimp out now? People are falling for the gambler’s fallacy or the ‘monte carlo fallacy’, whereby investors believe something must begin or end because of their perception of time. Both bull and bear markets do not have expirations dates and making decisions based off time is simply guess work. Based off present valuations, there isn’t a reason to be alarmed.
There are other reasons to be worried, more based in the earnings part of the PE, determinant upon whether the global economy can continue its measured pace without central bank stimulus.
The post Markets Surge Again; A Fresh Look at Valuations appeared first on Trading with The Fly.
May 23, 2017 at 01:31AM
from Dr. Fly
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