The S&P 500, arguably the globe’s bellwether stock market index, closed at 2041.91 last night. That’s a little more than 230 points, 12.7%, above its 2016 low, but even with this big bounce, last night’s close leaves the S&P 500 marginally in the red for the year.
We asked David Bassanese, chief economist of local ETF provider Betashares, why he thought prices in the US had run into a brick wall over the past few weeks.
His take is it’s a simple question of valuation.
“With US earnings flat while stocks prices are rising, the S&P’s rally was on fragile ground,” Bassanese said. And that’s pushed “price-to-earnings equity valuations further into expensive territory”.
Bassanese added that “the US S&P 500’s price-to-forward earnings ratio ended March at 16.9, compared to a long-run average of 14.5, and a level of 17.4 when the market peaked earlier last year.
Even without a stronger US dollar, the US earnings outlook remains challenged by a tightening labour market, vulnerably high profit margins, and only modest top-line revenue growth”.
Is it any wonder the global stock market rally has stalled?