Thread by @jsblokland

Valuation thread 1/7

The S&P 500 Index is up 18% from the low in mid June.

Valuation thread 2/7

#Earnings-per-share are up less than 2% since then and guidance has become significantly more cautious.

Valuation thread 3/7

As a result, the realized PE ratio of the S&P 500 Index has increased to a lofty 21. The forward PE has risen to 19.

Valuation thread 4/7
This means the implied #earnings-per-share growth for the S&P 500 Index is 11%.

Valuation thread 5/7

Both #earnings-per-share and #sales-per-share ratio have decreased during every major economic slowdown and #recession.

Valuation thread 6/7

For US #equities to become cheap, defined here as a forward PE ratio of at least one standard deviation slow the 10-year average, the forward PE ratio would have to drop to 15.3, or almost 20%.

Valuation thread 7/7

Assuming an optimistic zero growth in #earnings-per-share - many indicators point to negative earnings growth - the downside for the S&P 500 Index, from a Valuation perspective is significant.

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