Stocks: Market Valuation Holding Steady

Written by: Global Thought Leadership | July 13, 2018

Source: Bloomberg, July 13, 2018. Past performance is no guarantee of future results. Indexes are unmanaged, and not available for direct investment. Index returns do not include fees or sales charges. This information is provided for illustrative purposes only and does not reflect the performance of an actual investment.



  • July sees the beginning of corporate earnings season, as U.S. companies announce their financial results for the second quarter.  As of the close of business on Friday, July 13th, eight S&P 500 companies will have reported, including J P Morgan (JPM), one of the Dow Jones Industrial Average’s 30 companies.
  • With U.S. stocks well into the ninth year of a bull market and up slightly year to date, investors will focus on what this past quarter could reveal about profitability over the next two years, or further out.
  • In terms of forward earnings, valuations continue to be supportive.  Using consensus 3-year forward earnings estimates,[1] the S&P 500 is now trading at about 14.3 times, well below its peak of 16.5 toward the end of 2017.
  • Though the economic and policy assumptions behind these earnings estimates vary widely, it’s possible that the effects of the recent corporate tax cuts and expected increase in government spending aren’t reflected in these estimates, leaving room for additional upward earnings revisions – and a resultant improvement in valuations going forward.
  • Clearly, there will be both winners and losers among the companies making up the S&P500, the Russell 2000, and other well-known indexes, as well as for companies whose stocks fall outside these benchmarks.
  • In the current economic environment, experience and fundamental analysis can offer guideposts for active managers to find companies able to take advantage of the changes ahead.




All data: Source: Bloomberg, on their respective dates.

[1] Source: Bloomberg estimates, as of July 12 2018



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