Gluskin Sheff’s David Rosenberg is fattening up clients with a steady diet of economic commentary masquerading as breakfasts, lunches, brunches, coffees and the occasional pastry.
In a mid-morning missive on Tuesday - “Snack with Dave” - the thinking man’s bear argued that equities are nowhere near “Armageddon lows”, a notion floated when the markets plummeted in March:
After all, the forward P/E multiple on the S&P 500 at the lows was 11.7x. That was not a multi-decade low or some massive standard deviation figure — we were actually lower than that at the October 1990 lows when the multiple was 10.5x and frankly, coming off the 1987 collapse, the forward P/E had compressed to 9.8x. As it now stands, the multiple is back very close to where it was at the October 2007 market high, when the multiple had expanded to 15.0x. The range on the forward P/E over the last quarter-century is between 9.8x and 21.8x (excluding the tech bubble), so at 14.5x currently, it is hardly the case that this market can be viewed as a bargain.
On a trailing earnings basis, the P/E multiple has actually widened, from 17.0x at the lows to 23.3x currently, a huge multiple expansion. At this stage of the 2003 recovery, the multiple hardly expanded at all, earnings were driving the rebound; coming off the October 1990 lows, the multiple expansion four months into the rally was closer to 2x and the powerful surge in the post-1982 recovery saw a 3x multiple point expansion at this juncture — not 6x!
This being a Rosenberg note, the parting shot is less-than-cheery:
In other words, it is unlikely that we have crossed the Rubicon into new bull market terrain. As a result, the best advice is for active rather than passive investment strategies, and to maintain a conservative income-oriented tilt over the near-to-intermediate term across asset classes.
Related link:
Price / Earnings - Lessons From The Past - Long Room
