Perhaps the headline question was phrased incorrectly: maybe a better way to ask the question to investors is, “Is there enough P.E expansion with this SP 500 rally ?”<\/p>\n
Using the forward 4-quarter estimate published each week by Thomson Reuters, here is the SP 500 P.E ratio at month and quarter end:<\/p>\n
7\/31\/15: 16.8(x)<\/p>\n
6\/26\/15: 17.2(x)<\/p>\n
5\/29\/15: 17.2(x)<\/p>\n
4\/24\/15: 17.2(x)<\/p>\n
3\/27\/15:17.1(x)<\/p>\n
2\/27\/15:17.5(x)<\/p>\n
1\/30\/15:16.3(x)<\/p>\n
12\/26\/14: 17.0(x)<\/p>\n
9\/26\/14: 15.7(x)<\/p>\n
6\/27\/14: 15.9(x)<\/p>\n
3\/28\/14: 15.6()<\/p>\n
12\/27\/13: 15.7(x)<\/p>\n
9\/27\/13: 14.6(x)<\/p>\n
6\/28\/13: 14.2(x)<\/p>\n
3\/29\/13: 14.0(x)<\/p>\n
12\/28\/12:12.8(x)<\/p>\n
9\/28\/12:13.3(x)<\/p>\n
6\/29\/12: 12.7(x)<\/p>\n
3\/30\/12: 13.3(x)<\/p>\n
12\/30\/11: 12.1(x)<\/p>\n
Source: internal spreadsheet, with the cited P.E’s matching up with this blog each week.<\/p>\n
Analysis \/ conclusion: <\/strong><\/em>Does a near 50% expansion in the market’s multiple in the last 3.5 years, mean that we are close to a top in the bull market ? Working from memory in 1987, the SP 500 peaked near 26(x) forward earnings after the Dow 30 was a somewhat ridiculous 25% year-to-date as of July 31, 1987. In March of 2000, the SP 500 P.E was thought to be well north of 30(x), and the Nasdaq’s multiple, well, fughetaboutit…<\/p>\n Personally, I think the SP 500’s multiple is “walking up” the gradual improvement in Financial and Technology earnings, which remain the two largest sectors within the SP 500 41% and 37% of earnings weight and market cap respectively.<\/p>\n In Q1 ’15, the SP 500 earnings growth was 11%, ex-Energy, against a 17(x) multiple at the end of June. While I expect Q2 ’15 to be lower than 11%, if we see 7%, 8%, 9% y\/y earnings growth for the SP 500, which is still relatively subdued growth, a 17(x) multiple is still very reasonable.<\/p>\n An SP 500 growing core earnings 7%,8%, 9% each quarter, or high single digits, with a market multiple fluctuating around mid-teens, that market multiple doesn’t seem risky to me.<\/p>\n Apple is trading back down to the low end of its 6 – 7 month trading range. Given the stock’s importance to this bull market, a break of $119.75 or the 11\/29\/14 peak, and the stock could drop to $100.<\/p>\n","protected":false},"excerpt":{"rendered":" Perhaps the headline question was phrased incorrectly: maybe a better way to ask the question to investors is, “Is there…<\/p>\n","protected":false},"author":2,"featured_media":0,"comment_status":"open","ping_status":"open","sticky":false,"template":"","format":"standard","meta":{"_jetpack_memberships_contains_paid_content":false,"footnotes":""},"categories":[90,140],"tags":[],"class_list":["post-5041","post","type-post","status-publish","format-standard","hentry","category-apple-aapl","category-pe-expansion-contraction"],"jetpack_featured_media_url":"","jetpack_sharing_enabled":true,"post_mailing_queue_ids":[],"_links":{"self":[{"href":"https:\/\/fundamentalis.com\/index.php?rest_route=\/wp\/v2\/posts\/5041","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/fundamentalis.com\/index.php?rest_route=\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/fundamentalis.com\/index.php?rest_route=\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/fundamentalis.com\/index.php?rest_route=\/wp\/v2\/users\/2"}],"replies":[{"embeddable":true,"href":"https:\/\/fundamentalis.com\/index.php?rest_route=%2Fwp%2Fv2%2Fcomments&post=5041"}],"version-history":[{"count":10,"href":"https:\/\/fundamentalis.com\/index.php?rest_route=\/wp\/v2\/posts\/5041\/revisions"}],"predecessor-version":[{"id":5054,"href":"https:\/\/fundamentalis.com\/index.php?rest_route=\/wp\/v2\/posts\/5041\/revisions\/5054"}],"wp:attachment":[{"href":"https:\/\/fundamentalis.com\/index.php?rest_route=%2Fwp%2Fv2%2Fmedia&parent=5041"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/fundamentalis.com\/index.php?rest_route=%2Fwp%2Fv2%2Fcategories&post=5041"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/fundamentalis.com\/index.php?rest_route=%2Fwp%2Fv2%2Ftags&post=5041"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}