Based on the CFA level 2 Curriculum model of fundamentally justified P/E ratio – “price multiples in terms of fundamentals” – I have calculated a current fundamentally justified P/E ratio of S&P 500 index at the level of 15x
We all know that it is dangerous for investors to think and say “this time is different”. But once in a long while things can and do play out very differently from their historical patterns.
S&P 500 trades at a historically elevated valuation on both an aggregate and equal-weighted basis. Further valuation expansion is unlikely without a surprising further decline in yields.
Tale of two volatility metrics: VIX (blue) is sitting below its long-term average (using past 2 decades' worth of data) while MOVE (orange) is sitting above its long-term average…
