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Stocks Fairly Valued, Not Cheap: Market Barometer Update
6 Jul
Summary
- Stock market valuation sits at 0.60 sigma premium, within normal range.
- S&P 500 forward P/E ratio is 20, falling within historical norms.
- Current dividend yield is low but better relative to Treasury yields.
Market valuations suggest that stocks are reasonably priced but not yet bargains, with major asset classes nearing valuation parity. This assessment comes from the Stock/Bond Barometer, a model dating back to 1960. It incorporates real-time prices, historical growth, and future yield, inflation, and earnings forecasts.
The model outputs valuation in standard deviations (sigma). Stocks typically trade at a modest 0.18 sigma premium. Currently, this premium stands at 0.60 sigma, a level considered within the normal range.
Further analysis using the S&P 500 shows a forward P/E ratio of 20, which falls within the historical range of 15-24. Price/book ratios are at the higher end of their historical spectrum.
The S&P 500's current dividend yield is 1.03%, below the long-term average of 2.9%. However, relative to the 10-year Treasury bond yield, it presents a more favorable picture at 24% compared to historical averages.
