How Cheap Are Stocks?

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July 24 (Bloomberg) -- On today's "Chart Attack," JPMorgan Chase Chief U.S. Equity Strategist Tom Lee and Bloomberg's Adam Johnson loom at the price and performance of stocks on Bloomberg Television's "Street Smart." (Source: Bloomberg)

Time for a chart attack, which hopefully will make you smarter and some money.


I know you like stocks.

Seriously, talk us to -- three of evaluations.

I look at the forward p/e. and i think a lot of debate right now is what should teh p/e be?

This is a new era, where people do not like stocks.

We think stocks should trade relative to other instruments.

Let's bring in the camera and show everybody the ratio for the s&p 500. real plain vanilla stock.

The first thing i notice, tom, this has been sideways or about 3.5 years, really.

That is right.

A lot of movement in the markets for the last 2.5 years has been all because of earnings growth.

Earnings are going up, but is sideways -- p/e is sideways.

People are paying more.

People have been taking money out of the stock market, and it has been hurt by inflation and expectations, and that is why.

You think it can rise in the next coming months?

People willing to pay less?

I think we will be surprised how much in the next years or even six months.

You also made the jump to comparing the stock p/e ratio, something people do, creating a bond ratio, price versus evil.

A ratio for bonds.

That is right.

We like to look at corporate bonds.

This is a company that is either paying an interest coupon or paying dividends, so we should really value this very similarly.

Investors are not.

They are actually valuing bonds at a higher multiple.

Ok, let's show everybody what we are talking about.

We have got the jpmorgan index in yellow.

It is essentially price versus yield, and there is the high yield in blue.

So stocks are significantly cheaper than bonds.

That is your point.

If we were to stretch this chart out to 1980, we would be saying something is wrong today, because for the last 40 years, they always traded to bonds.

2009, stocks got cheaper than bonds.

That relationship has not reverted back to normal.

And, of course, that is what happens when you have the fed rate down.

A few seconds.

Do you think there will be an argument that stocks will come in more than bonds because people are willing to pay?

I actually think bond yields are valued fairly well, versus default rates.

Stocks remain super cheap.

That is why we are seeing record buybacks.

They realize they are cheap.


All right, thanks.

"surveillance" today, and the clothes is next on "street smart." and coming up, a take on the commander and chief of's latest economic speech.

We will also ask how bad it is to be beaten by bloomberg reporter in tennis.

That is coming up on "street smart."

This text has been automatically generated. It may not be 100% accurate.


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