John Lynch Chief Investment Strategist, LPL Financial | Jeffrey Buchbinder, CFA Equity Strategist, LPL Financial
Time to check in on stock valuations. After providing our assessment of stock market fundamentals, sentiment, and technical conditions over the past few weeks, this week we turn to the last piece of our investment process: valuations. Here we will make the case that stock valuations are reasonable, despite above-average price-to-earnings (PE) ratios.
VALUATIONS HAVE COME DOWN
Before making the case that stocks are fairly valued, we want to first point out how far valuations have fallen in recent months. Our favorite valuation tool for stocks, the PE ratio, has seen a falling “P” and a rising “E.” The S&P 500 Index is about 7% off its closing high for the year, set on January 26, while estimates for 2018 earnings for the index have risen by about 3% during that time (they are up 8% year to date)...