US Equities Only More Expensive Once in History
"In 1999, equity valuations stood at unprecedented peaks, even dwarfing those of 1929. At the time, investors were euphoric as if the rally were eternal...Investors bought the narrative with little to no due diligence."
"Not only is today's speculative environment eerily similar to the late '90s, but valuations, in many cases, are frothier than that period."
"Conservatively speaking, current valuations are on par or greater than those in 1999 and any other period. Such a statement is statistically factual, but it ignores the economic environments of both periods. For instance, if you think the economy and corporate earnings will grow at double-digit rates for years, we can make the case valuations are fair today."
"Economic and earnings growth rates today are weaker than 20 years ago. Further, debt levels, measured as a ratio to GDP, are much higher today. Productivity growth and demographics, two significant factors determining economic growth, are weighing on economic growth today. In the '90s, they were strong economic tailwinds."...the amount of monetary stimulus via low-interest rates, and the Fed's enlarged balance sheet is much more accommodative than in 1999."Fundamentals and the economic/earnings outlook are weaker today than in 1999. As a result, investors were better off paying higher valuations in 1999 than today...The bottom line is investors are paying more and getting less compared to 1999."
"Assuming the regression holds, and history has favorable odds of that occurring, we should expect the S&P500 to fall to 2,650 in the next two years. A 43% decline is harsh, but it will only leave the index at fair value based on the last 40 years of CAPE levels. Quite often, markets revert below their means."