Artis Real Estate Investment Pref Shs Series E T.AX.PR.E

S&P 500 in another bubble ?

[Torontojay]

The P/E ratio for the S&P is now above 28 times trailing earnings. If we take the inverse of that number we get an earnings yield of 3.57%. The 10 year treasury is at ~ 4.28% and its risk free! Keep in mind that earnings per share for the S&P has grown by ~ 9.2% from Q1 2024 compared to Q1 2023. Ttm Earnings per share is currently at around $191.33 which compares to $175.17 in Q1 2023. However, the S&P has increased in share price by a whopping 33% during that same time period. In other words, the majority of these gains are from a multiple expansion and not an earnings driven expansion. 

The next question now becomes, is the S&P 500 overvalued? If we use a 10% growth rate on 28-29
times trailing earnings then the foreword yield is still lower than the current 10 year treasury rate. This is a clear sign that the S&P is overvalued. You are much better off buying the 10 year notes for capital appreciation than an S&P etf index. In a recession, you will almost never lose buying the 10 year note and will certainly outperform the S&P over a short duration.