Stock prices have soared, P/E ratios are through the roof and there’s nothing left for clients to buy, right?
Two out of three are right. Yes, prices have soared. Since the election in November, the S&P 500 has surged 11.5%. Since June, 18.8%.
And P/Es generally have increased
as well, which makes sense since the numerators in that ratio are the aforementioned prices. The S&P 500 P/E stands at 24.9; the historical average from 1960 is 16.8.
Bloomberg points out a similar measure of valuation. The CAPE ratio (cyclically adjusted price-to-earnings) calculated by Yale professor Robert Shiller is at heights seen just three times since 1881, the first year it’s available. The other two occasions were just before the 1929 crash and the dot-com crash in 2000.
But nothing left to buy? Maybe not. Some funds still have low P/E ratios, and if reversion-to-the-mean means anything, these funds could represent buying opportunities. Although there are no guarantees in the markets; sometimes prices decline and never come back. Or, as in the case of 1929, can take an entire generation to erase the losses.
Whether you and your clients are growing skittish about equities, or see a buying opportunity, scroll through to see the 20 mutual funds with the lowest P/E ratios. All data from Morningstar.