There are many ways to value stocks.
Earnings are a great way to cut through the noise of revenues, sales, customer growth, and other metrics that may work for some industries but not others.
Value investors focus on PE ratios. Today, the S&P 500 P/E ratios are nearing historic highs, which is cause for some concern.
The Shiller PE ratio uses a metric that adjusts earnings based on economic cycles, or the CAPE ratio.
Using that metric, the S&P 500 has a Shiller PE ratio of over 40 today – a level only ever seen before in 1999.
Today’s Shiller PE ratio is higher than the 1929 peak for stocks, and 2021’s peak before the 2022 bear market. (Source: Multpl)
This high level still has some room to go before topping the dotcom peak. But not much. Markets remain priced for perfection – and in the next few months may go past perfection.
Should any narrative slow the AI growth story, stocks are setting up for a quick dive. If you’re invested in index funds, be aware that “prices to perfection” means exactly that: everything has to go according to plan to keep your money growing in this market.
~ Addison
P.S. While the stock market is priced for perfection, commodities still aren’t. Gold is well over $3,700 per ounce, but has only just broken to new inflation-adjusted highs in the past few weeks. Silver has topped $44 overnight, looking to retest its old highs at $48.
Plus, commodities such as uranium are breaking out after consolidating over the summer, and copper remains near highs. There’s still room for the commodity space to run.
This week on Grey Swan Live!, Portfolio Director Andrew Packer and contributor Shad Marquitz will review the latest developments in the commodity space and determine the best commodity plays through the end of 2025 and into 2026.
If you have any questions for us about the market, send them our way now to: feedback@greyswanfraternity.
