![\"\"](\"https:\/\/fundamentalis.com\/wp-content\/uploads\/thomosnMRP81619-300x31.png\")
<\/a><\/p>\n
Again, this is not an “equity risk premium” (so please be forewarned) but the Thomson “market risk premium” now shows stocks at their most attractive level since late December ’18.<\/p>\n
Here are the last 3 week’s prints for the Thomson MRP:<\/p>\n
- \n
- 8\/16\/19:<\/strong><\/em> 11.41%<\/li>\n
- 8\/9\/19:<\/strong><\/em> 11.17%<\/li>\n
- 8\/2\/19:<\/strong><\/em> 11.05%<\/li>\n<\/ul>\n
Here was the MRP at the 6\/31\/19 low for the SP 500 after the 5% May ’19 correction:<\/p>\n
- \n
- 5\/31\/09:<\/strong><\/em> 11.09%<\/li>\n<\/ul>\n
Here was the MRP in late December ’18:<\/p>\n
- \n
- 1\/4\/19: <\/strong><\/em>11.20%<\/li>\n
- 12\/28\/19:<\/strong><\/em> 11.06%<\/li>\n
- 12\/21\/19:<\/strong><\/em> 11.23%<\/li>\n<\/ul>\n
Current SP 500 earnings data: by the numbers:\u00a0<\/strong><\/em><\/p>\n
- \n
- Fwd 4-qtr est:<\/strong><\/em> $172.09 vs $172.26 from last week<\/li>\n
- PE ratio:<\/strong><\/em> 16.x<\/li>\n
- PEG (fwd):<\/strong><\/em> 9.8x<\/li>\n
- PEG (TTM):<\/strong><\/em> 3.5x<\/li>\n
- SP 500 earnings yield:<\/strong><\/em> +5.95% vs last week’s +5.90%<\/li>\n
- Year-over-year growth of fwd est:<\/strong><\/em> +1.71% vs +1.78% last week, and a very low expected growth rate<\/li>\n<\/ul>\n
Source: IBES by Refinitiv’s “This Week in Earnings”<\/p>\n
Summary \/ Conclusion:\u00a0 <\/strong><\/em>Readers should truly take all metrics and valuation work and all opinions with substantial skepticism since – as we found out in 2008 when the SP 500 peaked at 16x earnings – valuations can look reasonable and – at least with that recession – the bottom fell out even when the Fed was sanguine, or at least less worried. Undoubtedly, the elevated MRP from Thomson is being helped by that exceptionally low 10-year Treasury yield, although “forward 4-quarter” SP 500 earnings are still growing, and haven’t fallen off the table as they did starting in August, September, 2008.<\/p>\n
Since August 1, ’19, the corporate high yield market is down 98 basis points or just a smidge less than 1% even though the SP 500 is down about 5% from the late July ’18 all-time-high for the SP 500,so again we aren’t seeing too much “recession” concern by the credit markets (yet).<\/p>\n
Looking back at the history, the Thomson MRP was above 11% for\u00a040 weeks in 2016, from early January through mid to late October, 2016.<\/p>\n
When Michael Thompson and John Butter were still around and still managing “This Week in Earnings” the weekly missive did note that with the Nasdaq in the late 1990’s and early 2000’s, the MRP did fall into the 2% – 3% range, which makes sense, since the Nasdaq 100 trading at 100x earnings during that time, implied a 0% cost-of-capital as former Chairman Greenspan noted in a few of his speeches.<\/p>\n
The MRP is a relative risk or relative value measure with the lower readings implying stocks are expensive, and higher readings suggesting that stocks are cheaper.<\/p>\n
Each time the MRP has gotten over 11, it usually portends positively for forward or “expected” SP 500 returns.<\/p>\n
Out with more this weekend – thanks for reading.<\/p>\n
<\/p>\n","protected":false},"excerpt":{"rendered":"
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- PE ratio:<\/strong><\/em> 16.x<\/li>\n
- 12\/28\/19:<\/strong><\/em> 11.06%<\/li>\n
- 1\/4\/19: <\/strong><\/em>11.20%<\/li>\n
- 8\/9\/19:<\/strong><\/em> 11.17%<\/li>\n