SPX Valuation At New 15 Year High
Opinion
The indexes closed higher Friday with positive internals on the NYSE and NASDAQ as volumes rose from the prior session on the NYSE while NASDAQ volumes declined. Yet again, we saw new closing highs achieved on several of the charts, leaving the near term trend lines intact with one improvement. Yet we also see the forward valuation of the SPX based on forward 12-month earnings estimates via Bloomberg at a new 15-year high. While the trends should continue to be respected, valuation suggests to us that investors should approach the markets with some degree of caution as earnings disappointments while likely not be lightly taken. The data dashboard is unavailable this morning.
- On the charts, all of the indexes closed higher Friday with positive internals. New closing highs were achieved on the SPX (page 2), DJI (page 2), COMPQX (page 3), MID (page 4) and VALUA (page 5). The MID closed back above its near term uptrend line, turning its trend back to positive from neutral. The DJT (page 4) tested resistance but failed to violate, leaving its trend neutral as is the case on the NDX (page 3) and RTY (page 5). We remain of the opinion that the trends should still be respected until proven otherwise. The cumulative advance/decline lines are unchanged with the All Exchange neutral, the NYSE positive and the NASDAQ negative.
- However, we believe it worthy of note that the forward p/e of the SPX based on forward 12-month earnings estimates from Bloomberg is at another new 15-year high at an 18.8 multiple. When combined with investment advisor enthusiasm (contrary indicator) discussed in prior reports, the potential for air pockets in individual names, if earnings disappoint, should be taken into consideration. Depending on their market capitalization, they may impact the indexes as well.
- In conclusion, we believe the trends should still be respected but valuation and sentiment suggest some degree of caution is appropriate.