I work at a FX trading desk at a multinational, I am hardly a newcomer to Financial markets in general, I am sure as heck no expert in equity though.
FX markets have traded as if blood was in the water for the global economy for the better part of this year. They’re right to an extent, and weighted how events have transpired this year the US equity markets have done pretty well relative to the boom in USD.
I’d really like an expert opinion, but since 2018 US markets have generally traded above 20PE, and above 25 since 2020. Now with the rule of 20, I obviously don’t think the S&P should be trading at a 12, but 5y breakevens are still well above 2, so this market seems really expensive in that light of valuation; so rationally, you know maybe put a 17.5 multiple and give it 75BP of discount for a 16.75, that by that metric, that would probably be fairly valued. With anything above it being a premium and anything below it being a discount.
So is the rule of 20 dead? The S&P trades 21, so obviously that value of valuation is not being taken into account in this market. Some hedge funds have shorted this market, thinking this exact line and have been blown out of the water.
Maybe I answered my own question, but if there’s someone who is knowledgeable in equity and the history of equity in US markets, what did it? Or at least what do you think did it? In the mid 2010s that kind of drove valuations up? The dominance of tech?
I’m actually not trying to be a bear or a bull. I’m actually trying to start investing in my own personal long term equity portfolio. And as an investor, I would say value is important to me, one of the most important things to me and I have a hard time paying the multiples that the market is asking for.
TIA
Submitted September 11, 2022 at 08:16PM by TheSneedles https://ift.tt/ShpBKb2
