Stock Market Briefing: Valuation Models

Yardeni Research, Inc.

September 30, 2021

Dr. Edward Yardeni 516-972-7683 [email protected]

Joe Abbott 732-497-5306 [email protected]

Mali Quintana 480-664-1333 [email protected]

Please visit our sites at www.yardeni.com blog.yardeni.com

thinking outside the box Table Of Contents TableTable OfOf ContentsContents

Bulls & Bears 1 Rules of 20 2 Valuation Models 3 S&P 500 Index & Forward Earnings 4-5

September 30, 2021 / Stock Market Briefing: Valuation Models Yardeni Research, Inc. www.yardeni.com Bulls & Bears Figure 1. 6 30 S&P 500 FORWARD P/E & INVESTORS INTELLIGENCE BULL/BEAR RATIO

S&P 500 Forward P/E* (20.7) 5 Investors Intelligence 25 Bull/Bear Ratio (2.1)

4 9/24 20

3

15 9/28 2

10 1

yardeni.com 0 5 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 23

* Average weekly price divided by 52-week forward consensus expected operating earnings per share. Monthly through April 1994, then weekly. Source: Standard & Poor’s Corporation, I/B/E/S data by Refinitiv, and Investors Intelligence.

Figure 2. 70 30 S&P 500 FORWARD P/E & CONSUMER COMFORT INDEX

S&P 500 Forward P/E* (20.6) 60 10/13 25 Weekly Consumer Comfort Index** (59.5)

9/17 50 20

40 15

30 10

yardeni.com 20 5 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

* Average weekly price divided by 52-week forward consensus expected operating earnings per share. ** Index plus 100. Source: Standard & Poor’s, I/B/E/S data by Refinitiv, and Bloomberg.

Page 1 / September 30, 2021 / Stock Market Briefing: Valuation Models Yardeni Research, Inc. www.yardeni.com Rules of 20 Figure 3. 14 14 S&P 500 FORWARD P/E & RULE OF 20 P/E BASED ON CPI INFLATION RATE 12 12

10 20 minus Consumer Price Index 10 (yearly percent change) Minus S&P 500 P/E

8 8

6 6

4 4

2 2

0 0

-2 -2

-4 -4

-6 Aug-6 yardeni.com -8 -8 79 81 83 85 87 89 91 93 95 97 99 01 03 05 07 09 11 13 15 17 19 21

* P/E = price-to-earnings ratio using mid-month price and 12-month forward consensus earnings expectations. Source: I/B/E/S data by Refinitiv and Bureau of Labor Statistics.

Figure 4. 28 28 S&P 500 FORWARD P/E & P/E BASED ON RULE OF 20 USING 10-YEAR TREASURY YIELD (weekly) 26 26

24 24

22 22 9/24 20 20

9/24 18 18

16 16

14 14

12 S&P 500 Forward P/E* (20.7) 12

10 20 minus Ten-Year Treasury Yield (18.6) 10

yardeni.com 8 8 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

* Price divided by 52-week forward consensus expected operating earnings per share. Source: I/B/E/S data by Refinitiv and Federal Reserve Board.

Page 2 / September 30, 2021 / Stock Market Briefing: Valuation Models Yardeni Research, Inc. www.yardeni.com Valuation Models Figure 5. 25 25 S&P 500 INDEX Sep 20 P/E* (21.1) 20 LTEG** (22.2)

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*** (1.0) 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 Sep 1.0 .8 .8 .6 yardeni.com .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 6. 4.5 4.5 TOBIN’S q FOR NONFINANCIAL CORPORATIONS (ratio) 4.0 4.0

3.5 3.5

3.0 3.0 Actual q* Adjusted q** 2.5 Q2 2.5

2.0 2.0 Q2 1.5 1.5

1.0 1.0

.5 .5

yardeni.com .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 3 / September 30, 2021 / Stock Market Briefing: Valuation Models Yardeni Research, Inc. www.yardeni.com S&P 500 Index & Forward Earnings Figure 7. 650 650 S&P 500 COMPOSITE vs. S&P 500 BOTTOM UP FORWARD OPERATING EARNINGS EPS 610 (weekly data Indexed to week of March 9, 2009) 9/29 610 570 570

530 S&P 500 Index 530 Forward Earnings 490 490

450 450

410 410

370 370

330 9/23 330 290 290

250 250

210 210

170 170

130 130 yardeni.com 90 90 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 2021 2022 2023 2024

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

Figure 8. 4500 4500 S&P 500 COMPOSITE vs. S&P 500 BOTTOM UP FORWARD OPERATING EARNINGS EPS Aug (indexed to Sept 1978) 4000 4000

3500 3500 S&P 500 Index Forward Earnings 3000 3000

2500 2500

2000 2000

Sep 1500 1500

1000 1000

500 500

yardeni.com 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 4 / September 30, 2021 / Stock Market Briefing: Valuation Models Yardeni Research, Inc. www.yardeni.com S&P 500 Index & Forward Earnings Figure 9. 1000 1000 S&P 500 COMPOSITE vs. S&P 500 BOTTOM UP FORWARD OPERATING EARNINGS EPS 9/29 (weekly data Indexed to month end March 1994) 900 900

800 800

700 S&P 500 Index 700 Forward Earnings 9/23 600 600

500 500

400 400

300 300

200 200

yardeni.com 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.

Page 5 / September 30, 2021 / Stock Market Briefing: Valuation Models Yardeni Research, Inc. www.yardeni.com Copyright (c) Yardeni Research, Inc. 2021. All rights reserved. The information contained herein has been obtained from sources believed to be reliable, but is not necessarily complete and its accuracy cannot be guaranteed. No representation or warranty, express or implied, is made as to the fairness, accuracy, completeness, or correctness of the information and opinions contained herein. The views and the other information provided are subject to change without notice. All reports and podcasts posted on www.yardeni.com, blog.yardeni.comhttp://blog.yardeni.com, and YRI’s Apps are issued without regard to the specific investment objectives, financial situation, or particular needs of any specific recipient and are not to be construed as a solicitation or an offer to buy or sell any securities or related financial instruments. Past performance is not necessarily a guide to future results. Company fundamentals and earnings may be mentioned occasionally, but should not be construed as a recommendation to buy, sell, or hold the company’s stock. Predictions, forecasts, and estimates for any and all markets should not be construed as recommendations to buy, sell, or hold any security--including mutual funds, futures contracts, and exchange traded funds, or any similar instruments.

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