They ain’t dirt cheap, that’s clear. But just how lofty are US equity valuations? According to FactSet, the one-year forward multiple on the S&P 500 has reached the richest level since 2004. And that’s with analysts allowing for a 10% climb in earnings growth for 2017 as a whole. The only time one-year multiples were higher in recent memory was during the tech craze of the late 1990s, and that didn’t end well.
We’re not big believers in the idea that the new administration in Washington will be able to significantly accelerate economic growth. But there are reasons why stocks should carry a higher-than-average multiple on one-year-ahead earnings.