The Weekly Update 3/18/2022

As of 3/7/2022, Yardini Research estimated the S&P 500 earnings per share for full-year 2022 to be $229.60/share and growing.

As I write this Weekly Update on 3/16/2022 the S&P 500 closed at 4,357.86.  A normal measure of risk is to divide the Index value of 4,357.86 by the average earnings per share (EPS) of $229.60.  This results in a Price to Earnings Ratio, or P/E ratio, of 18.98 times.

For perspective, the marked crashed on October 19, 1987, at 24 times earnings, so we are below prior crash levels, based on actual earnings per share.

I recently came across this research piece I read titled “Daily Wealth” by Dr. Steve Sjuggerud.  In this issue, Dr. Sjuggerud presented research that added the price/earnings (P/E) ratio to the 90-day T-bill.

This is a tool that accounts for the cost associated with borrowing money, i.e., accounts for the impact of low interest rates on a company’s ability to earn profits.  The research quantifiably showed that when the total is above 22, we are in the danger zone.  Below 20 represents quantifiable value.

Based on this, I did some quick math to see the 2022 projected price/earnings (P/E) ratio is 18.98.  18.98 + .46 (yield on the 90-day T-bill) = 19.44 and in the “value” zone, i.e., below 20.

Valuations are not cheap, yet they are not nutty high either.  I would continue to argue that volatility in valuations is not fun and at the same time current earnings support values at these levels.

If your money is available to invest for a five-year period, you may be positively rewarded.

I’m interested in your thoughts, comments and observations. Feel welcome to call email or stop by the office and say Hi.

Respectfully,

James O. Lunney, CFP®

CERTIFIED FINANCIAL PLANNER™ Professional  

The opinions voiced in this material are for general information only and are not intended to provide specific advice or recommendations for any individual.  To determine which investment(s) may be appropriate for you, consult your financial advisor prior to investing.  All performance referenced is historical and is no guarantee of future results.  All indices are unmanaged and may not be invested into directly.  Investing involves risk including loss of principal.  No strategy assures success or protects against loss.