With the stock market (i.e., S&P 500 Index) around record nominal levels, the financial media is once again generating headlines meant to scare us into believing that it’s poised for a drop. I’m not trying to predict the immediate path of the market with this post; I’m simply pointing out some facts that fail to get much attention.
The stock market has been at or near its current level two previous times. Here are some interesting tidbits about those days in comparison to now.
The first time the S&P 500 reached these levels was in March 2000. The peak of the S&P 500 then was about 1,530. The earnings of the index that year were about $56 and the dividend was over $16. The index was trading at about 27 times current year earnings then. The 10-year Treasury bond was yielding about 5.8%.
The next time the market reached this level was in October 2007. The peak of the S&P 500 then was about 1,565. The earnings of the index that year were over $82 and the dividend was over $27. The index was trading at about 19 times current year earnings then. The 10-year Treasury bond was yielding about 4.5%.
As I write this, the S&P 500 is hovering around 1,575. The estimated earnings of the index this year is about $112 and the dividend is over $30. The index is trading at about 14 times estimated current year earnings. The 10-year Treasury bond is yielding about 1.7%.
Again, the purpose of this communication isn’t to attempt to predict the future of the market. It’s simply to reveal that the S&P 500 is trading at roughly the same level it was 13 years ago, but at about half the earnings multiple and close to double the dividend yield. Additionally, the most common alternative to stock investing (i.e., the bond market) is yielding less than a third of what it was yielding back then.
On the surface, that doesn’t seem like a “peak” from this comparison, but time will tell.
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