This is a market of 5 stocks. The broader market is much weaker than it appears. The Bloomberg consensus for the S&P 500 earnings growth in 2020 suggests the market is extremely expensive

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The Bloomberg consensus for the S&P 500 earnings growth in 2020 suggests the market is extremely expensive

So the market is expecting a 20-30% contraction in EPS for 2020 for the companies of the S&P 500. At the current index price, that gives a P/E ratio in the 23-25x range, similar to the dot-com bubble era.

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Let’s make a quick back-of-the-envelope calculation. I don’t have exact data under my eyes but it doesn’t matter, we can take estimation based on a quick google search: EPS estimate 2020: $130 EPS estimate 2021: $160 If we take a P/E of 17x, which is higher than the long-term average. That’s a SPX value of 2200 this year and 2720 next, both lower than today’s value. And we are in the middle of a shutdown of the global economy. I agree the calculation is simplistic, but from a risk-adjusted point of view, it is just difficult to justify the current pricing.

Given we are in one of the worst global economic slowdown we experienced in the past century, do you think it is sustainable?

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