Stocks are expensive?

[freedom2022]

Even though I am in the market over two decades, I am still not a sophisticated investor. I look at simple overall measure of the market: Shiller PE ratio and S&P 500.

S&P 500 reached highest ever in late 2021/ early 2022. Shiller PE ratio reached second highest about the same time. They both kept going down until Fall 2022. Then, S&P 500 kept going up fast until July 2023, however Shiller PE ratio not so much.

Looks like the market is very optimistic about interest rate will go down soon.

Any thought?

[COcheesehead]

The market is banking on earnings growth to keep it propped up. If earnings don’t keep pace, we could be looking at another bad market ‘20, ‘22 and TBD.
I will also say, that if/when rates drop, it won’t be a positive for the market, it will be in reaction to a recession. Watch what you wish for.
When rates drop, folks holding current coupon bonds will benefit.

[Car-Guy]

Quote:

Originally Posted by freedom2022 Looks like the market is very optimistic about interest rate will go down soon. Any thought?

I guess it depends on your definition of "soon". (Sort of like what is the definition of "IS".) Okay, I won't go there.

Listening to the Fed this week it sounded to me like rates may stay this high or higher, for longer than they anticipated. So if "soon" is late 2024 or even 2025, then probably yes. If soon is this year, then NO.

[pb4uski]

Yes, they are. About 25% based on current and forward P/E ratios compared to their long term averages.

[Lsbcal]

Quote:

Originally Posted by freedom2022 Even though I am in the market over two decades, I am still not a sophisticated investor. I look at simple overall measure of the market: Shiller PE ratio and S&P 500. S&P 500 reached highest ever in late 2021/ early 2022. Shiller PE ratio reached second highest about the same time. They both kept going down until Fall 2022. Then, S&P 500 kept going up fast until July 2023, however Shiller PE ratio not so much. Looks like the market is very optimistic about interest rate will go down soon. Any thought?

Yes I have a thought I cannot stop thinking

The Shiller PE10 is not really a short term indicator. Maybe a case can be made for it being a very long term indicator but only in the extremes. I do not invest that way.

I do not think the SP500 reaching high levels is actionable. Look at all the times it reached new highs.

Unemployment going up above it's moving average AND the SP500 breaching a 12 month moving average would get my attention. The first condition has been met but not the second ... yet. Also troubling is the amount of time the yield curve has been very strongly inverted -- not a good sign at all.

Here is the FRED graph of 2 views of the yield curve with recession shown:

[RetireAge50]

Slightly undervalued based on my historical 10% expectations.

StockHistory.jpg

[SunGuy]

The price of any given stock is irrelevant given the fact that you can now have fractional ownership.

Look at the overall company itself for long term value style investments, or if you are swing trading, or even shorter day trading, you really just want to buy and consider for market cycles.

[FREE866]

PE ratio is just one indicator. And not a very good predictor at that. Shiller PE thingy --10 years ago indicated the market was "too high". How did that work out?

[pb4uski]

Quote:

Originally Posted by FREE866 PE ratio is just one indicator. And not a very good predictor at that. Shiller PE thingy --10 years ago indicated the market was "too high". How did that work out?

I agree with you on Shiller P/E ratio, and I prefer gold 'ol historical P/E and forward P/E ratios.. But if P/E ratio is "not a very good" indicator, then what do you use to assess whether stocks are valued reasonably?

[FREE866]

Quote:

Originally Posted by pb4uski I agree with you on Shiller P/E ratio, and I prefer gold 'ol historical P/E and forward P/E ratios.. But if P/E ratio is "not a very good" indicator, then what do you use to assess whether stocks are valued reasonably?

PE ratio is just one component.


I don't pay too much attention to valuations in any given year because they change year to year due to a multitude of factors. Moreover, making investment decisions on where I think the market is going in any week, month, even couple years is an impossible game.



For me, it's about my investment time horizon and at 57 years old, barring a tragedy, I have a 20-30 + year time frame. If you look at history the stock market has provided extraordinary returns for those time frames. So, for me, even if returns are half of what they have been in the past I will be fine. The best way to participate in those returns are through effectively no cost, tax efficient major market index ETF's. Simple. That's my mindset and investment philosophy.

[foxfirev5]

Stocks are expensive. Like everything these days. The only action I've taken over the last year is to stop reinvesting dividends. With current real rates around 2% all maturing CD's, bonds and equity dividends are going into my TIPS ladders. It looks like TIPS, Strips and I bonds have about 25 years expenses covered.

Meanwhile, while expensive I'll keep the same number of shares in equity ETF's. I don't need it so I'll let it ride.

[GhostofTomJoad]

I'm seeing utilities with high P/Es. No need to go there. There are value stocks in many categories. Just don't get tangled up in a value-"trap."

I don't think rates will come down until 2025. Intuition combined with current situation. Workers do deserve a raise. They've been screwed for decades. Still a tight labor market. Unemployment is lower than it should be if a recession were imminent or already present.

[Al18]

Stocks are expensive. We may have a repeat of 2007-2008 when real estate loan activity indicate many folks are waiting for lower interest rate to jump back in. I’m holding onto my stocks right now, selling a small % for living expenses. The SP500 has been pretty flat over the past 3 months.

[GhostofTomJoad]

Quote:

Originally Posted by Al18 Stocks are expensive. We may have a repeat of 2007-2008 when real estate loan activity indicate many folks are waiting for lower interest rate to jump back in. I’m holding onto my stocks right now, selling a small % for living expenses. The SP500 has been pretty flat over the past 3 months.

My only REIT is the Postal REIT. PSTL. I don't bet the P.O. will default. Nevertheless, there is a knock-on effect in the current smelly situation. REITs are suffering. Still, PSTL is quite unique. A true niche stock. The only single stock I own that's actually doing very well is ET. Oil/gas midstream L.P.

[Time2]

Quote:

Originally Posted by COcheesehead The market is banking on earnings growth to keep it propped up. If earnings don’t keep pace, we could be looking at another bad market ‘20, ‘22 and TBD. I will also say, that if/when rates drop, it won’t be a positive for the market, it will be in reaction to a recession. Watch what you wish for. When rates drop, folks holding current coupon bonds will benefit.

Now that is an interesting way to finesse my portfolio that I had not thought of. I don't have any Bonds and never have. I may need to start looking.
I have a buddy that lost a bundle when rates took this rise and his lower premium bonds dropped in value.

[pb4uski]

Quote:

Originally Posted by GhostofTomJoad My only REIT is the Postal REIT. PSTL. I don't bet the P.O. will default. Nevertheless, there is a knock-on effect in the current smelly situation. REITs are suffering. Still, PSTL is quite unique. A true niche stock. The only single stock I own that's actually doing very well is ET. Oil/gas midstream L.P.

$16.90 in May 2019 and $13.68 today? 1.86% total return since inception? Not compelling to me even if it doesn't default.

[COcheesehead]

Quote:

Originally Posted by Time2 Now that is an interesting way to finesse my portfolio that I had not thought of. I don't have any Bonds and never have. I may need to start looking. I have a buddy that lost a bundle when rates took this rise and his lower premium bonds dropped in value.

That’s bonds 101. They drop when rates rise and rise when rates drop and you get paid interest in between.

[Texas Proud]

I really do not look at the ratios to make decisions (well, at least conscience decisions)...



You invest in a ration of stocks and bonds... you re-balance when they get out of whack.... trying to time the market is a fools game no matter much you think you can do so...


But and hold...

[freedom2022]

Thank you all for responding.

[Koolau]

Quote:

Originally Posted by freedom2022 Even though I am in the market over two decades, I am still not a sophisticated investor. I look at simple overall measure of the market: Shiller PE ratio and S&P 500. S&P 500 reached highest ever in late 2021/ early 2022. Shiller PE ratio reached second highest about the same time. They both kept going down until Fall 2022. Then, S&P 500 kept going up fast until July 2023, however Shiller PE ratio not so much. Looks like the market is very optimistic about interest rate will go down soon. Any thought?

I keep a relatively low commitment to equities. My goal is around 35% though it's crept up since last re-balance. That's how I deal with the rather high stock prices these days.

I agree with picking and AA and staying with it as long as it makes sense. YMMV