Apr 09 2008
Current Stock Market Valuations
Barry Ritholtz has a nice piece on his blog that takes a look at the current valuations of the major US indices. The basic point he’s making through a series of tables and graphs is that stocks are not exactly cheap right now, though they could be reasonably valued. On a 12-month trailing basis the PE of the Dow, NASDAQ, S&P 500 and Russell have all risen considerably in the last year. The only index he included where they haven’t is Utilities.
Yes, the forward looking PEs do look low, but there’s a catch. Barry points out, quite reasonably, that analysts are always late making the turn on their estimates and has a chart that demonstrates it. When I saw it, I couldn’t help but think about some model forecasts I’ve been shown recently where the projections looked almost exactly like price shifted one point forward – meaning wrong at every turning point.
I’m not always a big fan of Barry’s stuff as it’s often more negative than I care for, but I will certainly admit that he does present some interesting perspectives that others don’t always pick up on.
Here are some other posts which might interest you:
