Stock Market Briefing: Valuation Models December 11, 17 Dr. Edward Yardeni 16-972-7683 eyardeni@ Joe Abbott 732-497-36 jabbott@ Mali Quintana 48-664-1333 aquintana@ Please visit our sites at www. blog. thinking outside the box
Table Of Contents Table Of Contents Bulls & Bears 1 Rules of 2 Valuation Models 3 S&P Index & Forward Earnings 4- December 11, 17 / Stock Market Briefing: Valuation Models www.
Bulls & Bears Figure 1. S&P FORWARD P/E & INVESTORS INTELLIGENCE BULL/BEAR RATIO 3 4 S&P Forward P/E* (18.2) Investors Intelligence Bull/Bear Ratio (4.3) 12/ 2 3 12/1 2 1 1 88 89 9 91 92 93 94 9 96 97 98 99 1 2 3 4 6 7 8 9 11 12 13 14 1 16 17 18 19 * Average weekly price divided by 2-week forward consensus expected operating earnings per share. Monthly through April 1994, then weekly. Source: Standard & Poor s Corporation, Thomson Reuters I/B/E/S, and Investors Intelligence. 7 Figure 2. S&P FORWARD P/E & CONSUMER COMFORT INDEX 3 6 S&P Forward P/E* (18.2) Weekly Consumer Comfort Index** (2.3) 2 12/2 12/1 4 1 3 9 96 97 98 99 1 2 3 4 6 7 8 9 11 12 13 14 1 16 17 18 19 * Average weekly price divided by 2-week forward consensus expected operating earnings per share. ** Index plus. Source: Standard & Poor s, Thomson Reuters I/B/E/S, and Bloomberg. Page 1 / December 11, 17 / Stock Market Briefing: Valuation Models www.
14 12 8 Figure 3. Rules of S&P FORWARD P/E & RULE OF P/E BASED ON CPI INFLATION RATE minus Consumer Price Index (yearly percent change) Minus S&P P/E 14 12 8 6 6 4 4 2 2-2 Oct -2-4 -4-6 -8 79 8 81 82 83 84 8 86 87 88 89 9 91 92 93 94 9 96 97 98 99 1 2 3 4 6 7 8 9 11 12 13 14 1 16 17 18 19-6 -8 * P/E = price-to-earnings ratio using mid-month price and 12-month forward consensus earnings expectations. Source: Thomson Reuters I/B/E/S and Bureau of Labor Statistics. 28 26 Figure 4. S&P FORWARD P/E & P/E BASED ON RULE OF USING -YEAR TREASURY YIELD (weekly) 28 26 24 24 22 22 18 16 12/8 12/8 18 16 14 14 12 8 S&P Forward P/E* (18.2) minus Ten-Year Treasury Yield (17.6) 94 9 96 97 98 99 1 2 3 4 6 7 8 9 11 12 13 14 1 16 17 18 19 12 8 * Price divided by 2-week forward consensus expected operating earnings per share. Source: Thomson Reuters I/B/E/S and Federal Reserve Board. Page 2 / December 11, 17 / Stock Market Briefing: Valuation Models www.
2 Figure. S&P INDEX Valuation Models 2 P/E* (18.) LTEG** (13.9) Nov 1 1 1.8 1.6 1.4 1.2 S&P PEG RATIO PEG*** (1.3) Nov 1.8 1.6 1.4 1.2 1. 1..8.6 8 86 87 88 89 9 91 92 93 94 9 96 97 98 99 1 2 3 4 6 7 8 9 11 12 13 14 1 16 17 18 19.8.6 * P/E = price-to-earnings ratio using mid-month price and 12-month forward consensus earnings expectations. ** LTEG = consensus median -year expected earnings growth. *** PEG = P/E divided by LTEG. Source: Thomson Reuters I/B/E/S. 2. Figure 6. TOBIN S q FOR NONFINANCIAL CORPORATIONS (ratio) 2. 2. 2. 1. Actual q* Adjusted q** Q3 1. 1. Q3 1.... 2 4 6 8 6 62 64 66 68 7 72 74 76 78 8 82 84 86 88 9 92 94 96 98 2 4 6 8 12 14 16 18 22. * Ratio of the market value of equities to the net worth of corporations including real estate and structures at market value and equipment, intellectual property products, and inventories at replacement cost. ** Actual divided by average since 192. Note: Shaded red areas denote S&P bear market declines of % or more. Yellow areas show bull markets. Source: Flow of Funds. Page 3 / December 11, 17 / Stock Market Briefing: Valuation Models www.
4 39 37 3 33 3 29 27 2 23 2 19 17 1 13 1 9 Figure 7. S&P Index & Forward Earnings S&P COMPOSITE vs. S&P BOTTOM UP FORWARD OPERATING EARNINGS EPS (weekly data Indexed to week of March 9, 9) S&P Index Forward Earnings 9 11 12 13 14 1 16 17 18 19 Source: Standard & Poor s Corporation and Thomson Reuters I/B/E/S. 12/6 11/3 4 39 37 3 33 3 29 27 2 23 2 19 17 1 13 1 9 26 24 Figure 8. S&P COMPOSITE vs. S&P BOTTOM UP FORWARD OPERATING EARNINGS EPS (indexed to Sept 1978) Nov 26 24 2 2 18 S&P Index Forward Earnings 18 16 16 14 14 1 Nov 1 8 8 6 6 4 4 7879 8 81 82 83 84 8 86 87 88 89 9 91 92 93 94 9 96 97 98 99 1 2 3 4 6 7 8 9 11 12 13 14 1 16 17 18 19 Source: Standard & Poor s Corporation and Thomson Reuters I/B/E/S. Page 4 / December 11, 17 / Stock Market Briefing: Valuation Models www.
7 Figure 9. S&P Index & Forward Earnings S&P COMPOSITE vs. S&P BOTTOM UP FORWARD OPERATING EARNINGS EPS (weekly data Indexed to month end March 1994) 7 6 12/6 6 S&P Index Forward Earnings 11/3 4 4 3 3 94 9 96 97 98 99 1 2 3 4 6 7 8 9 11 12 13 14 1 16 17 18 19 Source: Thomson Reuters I/B/E/S. Page / December 11, 17 / Stock Market Briefing: Valuation Models www.
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