The S&P 500 at 1,500?
Excerpts:
The benchmark Standard & Poor’s 500 index is within a flutter of reaching 1,500, a level it attained only twice before on the way up, in March 2000 and May 2007.
... In 2000, the market was vastly overvalued, with bubble-grade multiples on largely illusory or over-inflated corporate profits. The S&P traded at nearly 30-times the prior year’s earnings when it got to 1,500, and the total U.S. stock market was worth a towering 180% of U.S. gross domestic product. This excessively expensive starting point largely explains the subsequent decade’s negative return on stocks. At the time, 10-year Treasuries yielded better than 6%, offering an excellent alternative for the few who saw it as such at the time.
In 2007, the market was at 18-times earnings, higher than the historical average of around 15, and a touch higher than the present P/E of 17-times the past year’s reported earnings.
By these gauges, the present valuation is neither enticingly cheap nor resoundingly expensive. If 2013 analyst forecasts are reached, which is no sure thing, the market is at a forward multiple near 14, still above average but in a zone where valuation would neither be an impediment to additional upside nor a comforting cushion to absorb any economic setbacks.
At least two things stand out as supportive factors for today’s S&P 500 at the 1,500 mark. First, today’s market contains fewer obvious imbalances. The 2000 market was distended nearly beyond recognition by the bubbly values, silly business models and capital destruction of the tech sector. In 2007, financial earnings had peaked near 40% of total index profits, and they’d soon be reversed as massive credit losses in the bust.
Today, the market isn’t clearly dependent on a single sector. Seven of the S&P’s 10 industry sectors today account for at least 10% of the index’s market value each, compared to five in 2007 and three in 2000. True, low rates are the common prop to profits in the consumer area and have slashed borrowing costs for all companies, but low rates are also penalizing financial-company profits.Comment: I wasn't investing much back in 2000. Kathee had been in a 401K for 8 years and me for 6 years. I've felt for a long time that I need the S&P 500 to be above 1,500 for me to retire. Monthly S&P 500 index from my birthday (1949)
Update on 1/24/13 - Milestone reached
WSJ S&P 500 Tops 1500; Who Needs Apple?
ReplyDelete• The S&P 500 first closed above the 1500 level was on March 22, 2000.
• Two days later on March 24, the S&P 500 ended its record breaking run at the time at 1527.46, a peak that held for the next 7½ years.
• The ensuing bear market took the index down to a low of 776.76 hit on October 9, 2002 (a 49% drop)
• The index then took five years to recoup its loss and set a new record of 1565.15 on October 9, 2007.
• Overall, it traversed 1539 points from the March 2000 peak to the October 2007 record close.
• The financial crisis of 2007 then caused the index to plunge 57% to a 12 ½ year low of 676.53 hit on March 9, 2009.
• As of the current level of 1500.36 the index has regained roughly 96%% of its loss in nearly four years so far.
• The last close above 1500 was on December 10, 2007 at 1515.96.
• The last time it traded above 1500 intraday was on December 12, 2007.