Stock Market Briefing: Valuation Models

Stock Market Briefing: Valuation Models

Yardeni Research, Inc.

December 1, 2023

Dr. Edward Yardeni

516-972-7683 eyardeni@

Joe Abbott

732-497-5306 jabbott@

Mali Quintana

480-664-1333 aquintana@

Please visit our sites at blog.

thinking outside the box

Table Of Contents Table Of Contents

Valuation Models

2

S&P 500 Index & Forward Earnings

3-4

December 1, 2023 / Stock Market Briefing: Valuation Models

Yardeni Research, Inc.



Figure 1.

30

S&P 500 P/E RATIO & INFLATION 28 (using reported earnings 1935-1978, forward earnings* 1979-present)

26

24

Consumer Price Index

(yearly percent change)

22

20

18

SS&&PP 550000 PP//EE*

26 24 22 20 18 16 14 Nov 12

16

10

14

8

6 12

4

10

Oct

2

8

0

6

-2



4

-4

35 37 39 41 43 45 47 49 51 53 55 57 59 61 63 65 67 69 71 73 75 77 79 81 83 85 87 89 91 93 95 97 99 01 03 05 07 09 11 13 15 17 19 21 23 25 27

* Four-quarter trailing sum of reported earnings through 1978, then time-weighted average of analysts' consensus estimates for S&P 500 operating earnings per share for current year and next year. Monthly from January 1979. Note: Shaded red areas are S&P 500 bear market declines of 20% or more. Yellow areas are bull markets. Source: I/B/E/S data by Refinitiv and Standard & Poor's.

Figure 2.

30

S&P 500 P/E & BOND YIELD 28 (using reported earnings 1953-1978, forward earnings* 1979-present)

26

24

S&P 500 P/E*

22

20

18

18 16 14 12 Nov 10

16

8

14 6

12

10

Nov 4

8 6

10-Year

US Treasury Yield (percent)

2



4

0

53 55 57 59 61 63 65 67 69 71 73 75 77 79 81 83 85 87 89 91 93 95 97 99 01 03 05 07 09 11 13 15 17 19 21 23 25

* Four-quarter trailing sum of reported earnings through 1978, then time-weighted average of analysts' consensus estimates for S&P 500 operating earnings per share for current year and next year. Monthly from January 1979. Note: Shaded red areas are S&P 500 bear market declines of 20% or more. Yellow areas are bull markets Source: I/B/E/S data by Refinitiv, Standard & Poor's, and Federal Reserve Board.

Page 1 / December 1, 2023 / Stock Market Briefing: Valuation Models

Yardeni Research, Inc.



Valuation Models

Figure 3.

25

25

S&P 500 INDEX

20

P/E* (18.7)

20

LTEG** (10.5)

15

15

10

10

5

5

3.0

3.0

2.8 S&P 500 PEG RATIO

2.8

2.6

2.6

2.4

PEG*** (1.8)

2.4

2.2

2.2

2.0

2.0

1.8

1.8

1.6

1.6

1.4

1.4

1.2

1.2

1.0

1.0

.8

.8

.6

.6

.4

.4

85 86 87 88 89 90 91 92 93 94 95 96 97 98 99 00 01 02 03 04 05 06 07 08 09 10 11 12 13 14 15 16 17 18 19 20 21 22

* P/E = price-to-earnings ratio using mid-month price and 12-month forward consensus earnings expectations. ** LTEG = consensus median 5-year expected earnings growth. *** PEG = P/E divided by LTEG.

Source: I/B/E/S data by Refinitiv.

Figure 4.

4.5

4.5

TOBIN'S q FOR NONFINANCIAL CORPORATIONS

4.0

(ratio)

4.0

3.5

3.5

3.0

3.0

Actual q*

Adjusted q**

2.5

2.5

2.0

Q2 2.0

1.5

Q2 1.5

1.0

1.0

.5

.5



.0

.0

52 54 56 58 60 62 64 66 68 70 72 74 76 78 80 82 84 86 88 90 92 94 96 98 00 02 04 06 08 10 12 14 16 18 20 22 24 26

* Ratio of the market value of equities to the net worth of corporations including real estate and structures at market value and equipment, intellectual property products, and inventories at replacement cost.

** Actual divided by average since 1952. Note: Shaded red areas denote S&P 500 bear market declines of 20% or more. Yellow areas show bull markets. Source: Flow of Funds.

Page 2 / December 1, 2023 / Stock Market Briefing: Valuation Models

Yardeni Research, Inc.



S&P 500 Index & Forward Earnings

Figure 5.

650

S&P 500 COMPOSITE vs. S&P 500 BOTTOM UP FORWARD OPERATING EARNINGS EPS 610 (weekly data Indexed to week of March 9, 2009)

650 11/29

610

570

570

530

S&P 500 Index

530

Forward Earnings

490

490

450

450

410

410

370

11/23 370

330

330

290

290

250

250

210

210

170

170

130

90 2009

2010

2011

2012

2013

2014

2015

2016

2017

2018

2019

2020

2021

2022

130

90

2023 2024

Source: Standard & Poor's Corporation and I/B/E/S data by Refinitiv.

Figure 6.

5500

5500

S&P 500 COMPOSITE vs. S&P 500 BOTTOM UP FORWARD OPERATING EARNINGS EPS

5000 (indexed to Sept 1978)

5000

4500

4000

S&P 500 Index

Forward Earnings

3500

4500 Mar

4000

3500

3000

3000

2500

2500

2000 1500

2000 Apr

1500

1000

1000

500

500



0

0

78 80 82 84 86 88 90 92 94 96 98 00 02 04 06 08 10 12 14 16 18 20 22 24

Source: Standard & Poor's Corporation and I/B/E/S data by Refinitiv.

Page 3 / December 1, 2023 / Stock Market Briefing: Valuation Models

Yardeni Research, Inc.



S&P 500 Index & Forward Earnings

Figure 7.

1300

1300

S&P 500 COMPOSITE vs. S&P 500 BOTTOM UP FORWARD OPERATING EARNINGS EPS

(weekly data Indexed to month end March 1994)

1100

900

S&P 500 Index

Forward Earnings

1100 4/20

900

700

4/14

700

500

500

300

300



100

100

94 95 96 97 98 99 00 01 02 03 04 05 06 07 08 09 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24

Source: I/B/E/S data by Refinitiv.

Figure 8.

30

S&P 500 Reported Trailing P/E S&P 500 P/E

28

(using rep1o9r6te0d-1t9r7a8iling earnings 1960-1978, forward earnings* 1979-present)

26

24

22

20

18

18 16 14 12 10 11/23 8

16

6

14

4

Oct 12

2

10

8

Consumer Price Index

0

(yearly percent change)

6

-2



4

-4

60 62 64 66 68 70 72 74 76 78 80 82 84 86 88 90 92 94 96 98 00 02 04 06 08 10 12 14 16 18 20 22 24

* Time-weighted average of consensus estimates of S&P 500 operating earnings per share for current year and next year. Monthly from January 1979 through April 1994, then weekly. Note: Shaded areas are recessions according to the National Bureau of Economic Research. Source: I/B/E/S data by Refinitiv and Standard & Poor's.

Page 4 / December 1, 2023 / Stock Market Briefing: Valuation Models

Yardeni Research, Inc.



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