Go to the Globe and Mail homepage

Jump to main navigationJump to main content

Report on Business

Streetwise

News and analysis on Bay Street and the world of finance
available exclusively to subscribers of Globe Unlimited

Entry archive:

U.S. stocks still cheap despite huge profits Add to ...

What will it take for U.S. investors to get over their fears about the global economy?

Almost four years into this seemingly never-ending recovery, even massive corporate profits haven’t been enough to convince investors to really trust the equity markets.

No doubt, U.S. stock markets are climbing higher, so it’s not as though no one’s buying back in. Last week the S&P 500 hit its highest point since 2008, and the Nasdaq flirted with 3,000. But Bloomberg ran the numbers and found that at the S&P 500’s current valuation of 14.1 times forward earnings, the index is cheaper than at any 52-week peak in the last 23 years.

More related to this story

That cheapness comes despite 99 per cent growth in profits between the end of 2009 and 2011, and despite growth projections of 12 per cent this year and 12 per cent next, according to Bloomberg.

As one of the people Bloomberg interviewed put it: “What you’re seeing is a gigantic exercise in behavioural finance.”

(Of course, the argument that kills Bloomberg’s analysis is the one that says earnings projections are too high, which would bump the current multiple. But estimates are what they are.)

Follow on Twitter: @timkiladze

 
Security Price Change
SPX-I S&P 500 1,970.07 0.12
0.006 %
Add to watchlist
Live Discussion of SPX on StockTwits
More Discussion on SPX-I

Topics:

In the know

Most popular video »

Highlights

More from The Globe and Mail

Most Popular Stories