The U.S. stock-market rally to an almost-record high has left the Standard & Poor’s 500 Index trading at the most expensive level in 18 months.
The CHART OF THE DAY shows that the price-earnings ratio for the U.S. equity benchmark has increased 25 percent to 14.9 since October 2011, according to data compiled by Bloomberg. That’s still 10 percent cheaper than the average multiple of 16.6 from the past decade.
“Stocks are fairly valued,” Donald Selkin, who helps manage about $3 billion as chief market strategist at National Securities Corp. in New York, said in a phone interview yesterday. “As long as interest rates stay low, I don’t think we’re going to get much multiple expansion.”
The S&P 500 is 3.6 percent below the record 1,565.15 reached in October 2007 after lawmakers agreed on a budget compromise and companies reported better-than-estimated earnings. The gauge has more than doubled from its 12-year low in 2009 after the Federal Reserve cut interest rates to near zero and increased its balance sheet to a record $3 trillion by buying Treasuries and mortgage-backed securities. The U.S. equity benchmark added 0.6 percent to 1,517.93 today.
The most expensive stock in the S&P 500 is online retailer Amazon.com Inc., which trades at 723 times its earnings, followed by Netflix Inc. with a ratio of 627, data compiled by Bloomberg show. Seagate Technology Plc, which makes hard disk drives, and Best Buy Co. are the cheapest, with ratios below 4.6.
About 75 percent of the 341 S&P 500 companies that have released results so far in the reporting season have exceeded profit projections, and 67 percent have beaten sales estimates, according to data compiled by Bloomberg.
“You have anemic growth,” Michael Cuggino, who helps manage about $17 billion at San Francisco-based Pacific Heights Asset Management, said in a phone interview. “We may be reaching a point where we’ve maxed out on the efficiencies and that sort of effect on profits. We need something that’s going to spur animal spirits to get the economy moving again.”