What if the optimists are right? What if the glass is half full? Although no one can predict the next move in stocks, and you don’t want to bet your retirement on it, it’s not hard to see the case for a bull market in 2020 — even after a spectacular year for stocks in 2019.
The Standard & Poor’s 500 index historically trades at a market multiple of 16 to 18 times its expected earnings. Put another way, the average share in the S&P 500 historically is priced at between 16 and 18 times every dollar of profit per share it’s expected to earn in the next year. Lately the price of the S&P 500 has been trading above the normal valuation band, at about 19 times expected earnings. Normally that would be a sign of overvaluation, but what if the market multiple continues to expand?
The Standard & Poor’s 500 index historically trades at a market multiple of 16 to 18 times its expected earnings. Put another way, the average share in the S&P 500 historically is priced at between 16 and 18 times every dollar of profit per share it’s expected to earn in the next year. Lately the price of the S&P 500 has been trading above the normal valuation band, at about 19 times expected earnings. Normally that would be a sign of overvaluation, but what if the market multiple continues to expand?
The latest economic data from The Conference Board on the leading economic indicators, the Census Bureau on housing starts, and the Bureau of Economic Analysis on real disposable income all confirmed The Wall Street Journal’s most recent consensus forecast of economists for an expected growth rate of just under 2% for the next five quarters and the S&P 500 index once again broke all-time high price records on the news. While you never make financial plans based on things going right, sometimes the glass indeed is half-full.
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