Stocks Have Never Been More Expensive Based On Long-Term Growth Forecasts

As the S&P 500 pushes towards Goldman Sachs' 2,100 year end target (for 2015!!) today, we thought it worth considering just how much awesomeness has been pulled forward, priced-in, exuberantly-chased. As the following charts show, based on bottom-up long-term-growth expectations, S&P forward P/E valuations have never been higher. But that's not all...

The current Forward P/E of the S&P 500 is dramatically higher than is the 'norm' given bottom-up long-term growth forecasts... in fact, given current growth expectations, stocks are the most expensive ever...

 

 

Either valuations need to drop by 3 turns or long-term growth expectations need to rise by 3 turns (magically out of nowhere) for valuations to return to their highly correlated 'norm'

But... it's not just P/E that is getting extreme...

 

 

 

And margins continue to test historically stratospheric levels...

 

 

Of course, it's different this time and underlying fun-durr-mentals will gently rise (along with interest rates) to bring valuations back to norm and we all live happily ever after...

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Moon Kil Woong 9 years ago Contributor's comment

Sadly, apparently no one in the market knows or cares. That is probably due to the Federal Reserve directing everyone into stocks and their constant orchestration to protect it from the most minor of plunges, which only leads to giant cyclical plunges even they can't avoid. People as usual will wake up to the truth when their 401Ks drop 50% or more again. After all, most people have divorced themselves from managing their most important assets and call it intelligent. Of course, brokers agree with them since they are the ones who get rich off their assets regardless of how much they lose.

Joe Economy 9 years ago Member's comment

Curious to know why you believe the Fed directs everyone into stocks? What do you suggest as a better alternative to stocks? Are ETFs a safer bet perhaps. However you look at it, all investments that remotely relate to the S&P are exposed to risk.

Moon Kil Woong 9 years ago Contributor's comment

The Federal Reserve has always before now tried to be neutral for fear of manipulating markets and spurring bubbles in them although they seem to have a long term agenda at keeping gold and silver low to prevent the appearance of inflation. There are many papers written on the Federal Reserve's not only to plunge protect the stock market but direct the primary dealer banks and TBTF banks into investing in the stock market. This is not impartial in the least, if anything it's a purposeful attempt at making an artificial bubble to make people feel artificially wealthier as long as it lasts.