There is an argument being made that the currently high valuation measures (PE, dividends, price to book, price to sales) are really not so high when you consider that today’s interest rates are so low. The thinking is that today’s ultra-low interest rates make the stock market undervalued.
The good news is that we have a great deal of historical information telling us what forward returns will likely be. The bad news is that we find ways to justify why “it is different” today.
Today, let’s take a look at the probable forward returns from both a fundamental perspective (hint: 0% to 4%) and a really interesting chart on forward returns from a technical perspective. This chart, in particular, is one that really caught my eye this week.
I share the following in this week’s On My Radar:
- Forward Expected Returns – Low Interest Rates Do Not Justify High Valuations
- JPMorgan Joins Goldman in Designing Derivatives for a New Generation
- Trade Signals: Short-term Sentiment Says Buy
Forward Expected Returns – Low Interest Rates Do Not Justify High Valuations
“What quantitative easing has done is to exploit the discomfort that investors have with earning nothing on safe investments, making them feel forced to extend their risk profile in search of positive expected returns. The problem is that there is little arithmetic involved in that decision.” John Hussman
Founder & CEO CMG
Stephen Blumenthal founded CMG in 1992. He is CEO, Chief Investment Officer and portfolio manager at Capital Management Group, Inc. where he manages equity and tactical investment portfolios. He is a frequent speaker and writer on investment strategies and has been featured in various media sources including the Wall Street Journal, Barron’s, Investor’s Business Daily, Pensions & Investments Magazine, Investment News, RIA Biz and Smart Money. He has been a guest on CNBC, Wall Street Journal Live, and Bloomberg. Mr. Blumenthal is a frequent speaker at industry conferences (NAPFA, IMCA, Index Universe, Opal Financial Group Indexing & ETF Summit and NAAIM) and is author of CMG’s popular investment research commentary. With 30 years of investment management and industry experience, prior to founding CMG, Mr. Blumenthal worked for Merrill Lynch Institutional, Merrill Lynch Retail and Prudential Securities.
Mr. Blumenthal graduated with a Bachelor of Science degree in Accounting from Pennsylvania State University. He is married, has three children and is active in his community coaching youth soccer.