Equity Valuations -- Commentary -- June 2, 2024

Locator: 48039INV.

Link here.

From the linked article:

Six months ago, an average Joe may have been willing to pay $5 for a dollar of the S&P 500’s future profits. 

Today, he’s ready to pay way more.

 This is essentially what’s happened in the stock market. As of last week, investors are paying 20.57 times for each share of the S&P 500’s projected profits over the next year, marking a 3.4 point gain on the index’s valuation from its October market low. 

Such a surge in the S&P 500’s price-to-earnings multiple over a short span is rare; it’s happened only 5% of the time in the past three decades, David Rosenberg, a renowned strategist, wrote in a note.

Why? It goes back to my favorite chart. LOL.

One answer for the high valuations: Liquidity. 

By many measures, there’s money to invest in the market, helping drive up valuations. 

Money-market fund balances are the most commonly cited trove of cash; assets held totaled $6 trillion for the first time in February—and the latest value for week ended May 29 remains above this record. 

The rationale is that this sidelined money, usually invested in short-term debt such as Treasury bills, can be deployed to purchase equities anytime, creating a feedback loop. 

Other liquidity indicators are also pointing to a healthy level of money in the system: The overnight reverse repurchase facility—a place where institutions park excess cash to earn interest from the Federal Reserve—is at $440 billion. The M2 money supply, a gauge of money in the economy, currently hovers at $21 trillion.

YOLO, FOMO, MOJO. 

Four things not mentioned.

AI.

WWII analogy / Covid-19 lock down. 

Demographics. 

Retirement accounts.