Some years earnings growth is much higher than that, while in other years earnings tank. Earnings sometimes oscillate violently around a trend line, but they do oscillate. We have no idea how badly the Coronavirus epidemic will impact earnings in 2020, but it doesn't really matter; we have a fairly good idea of what earnings will be in 2030.
Based on this long-term trend line, as of 12:00 PM today (3/12/2020), the S&P 500 was trading at a forward P/E multiple of 15.1x (chart below), its cheapest level since March 2013, seven years ago, when still recovering from the post-Financial Crisis hangover. Back then, 10 year Treasury yields were about 1.8%, compared with just 0.81% today. (See below for more on yields).
In fact, the market's current P/E is slightly below the bottom of 15.4x seen in 2003 following the bursting of the Tech bubble and terrorist attacks of 9/11.
Bottom Line: We can't tell you when the market will hit bottom, but if you believe that we will get through the Coronavirus and that the economy and earnings will recover--be it one quarter from now or six-- U.S. equities are at some of their most attractive levels in the past 25 years.
For more analysis of the S&P 500 go to the S&P 500 SPDR (SPY) Fund Focus page. |