Stocks Way Overvalued by Any Metric, Per Study

Ned Davis Research shows that various ways of gauging price-to-earnings ratios demonstrate equities reaching historically high levels.


How rich are current stock valuations? By whatever metric you use, very rich.

In a report, Ned Davis Research called the S&P 500’s lofty elevation “ugly” and noted that the index is at a point reminiscent of bubbles, such as the one that popped in 2008.

“No matter how one slices it, stocks are expensive based on price/earnings ratios,” wrote Ed Clissold, Davis’ chief U.S. strategist, and London Stockton, a research analyst at the firm.

The report ran through different measurements to demonstrate the precipitously high level that stocks occupy. Only a few other instances, such as during the dot-com bubble, the housing bust and the pandemic shutdown (when earnings skidded faster than stock prices) were higher, it indicated. Indeed, the S&P 500 P/E briefly hit 131 in March 2009 (its low was 5.3 in 1949).

Want the latest institutional investment industry
news and insights? Sign up for CIO newsletters.

According to the Davis study, the S&P 500 forward P/E of 21.6, as of August, is among the top 9% of all monthly measurements since 1983. Clissold and Stockton acknowledged that forward P/Es are influenced by analysts’ “rosy forecasts,” which “don’t always capture investors’ expectations.” So the report looked at the index’s P/E using operating earnings, namely those that exclude what analysts deem “extraordinary items.” Result: a P/E of 25.7, even higher than the forward multiple.

Then the study looked at GAAP earnings, which include the extraordinary items and also depreciation, interest and taxes. Upshot: a multiple only slightly less than the operating earnings’ version.

Next, the report turned to taking a P/E using the median ratio, smack in the middle of the S&P 500, which was 26.8.

Another investor agreed with the Davis conclusions, but added that a crash is not likely.

If stock prices fall from their towering perches, it likely will not happen in a sudden plunge, predicts Don Townswick, managing director of equities at asset manager Conning. “This is a balloon, not a bubble,” he says in an interview. “It will deflate, not pop.”

Some high P/Es are justified, he says. But as a whole, the current environment is altered due to anomalies of the market, such as the bifurcation between the top seven mega-cap tech stocks in the S&P 500 and the others: 35 times forward earnings versus 18. And 18, he notes, is still several percentage points above the index’s historical average.

Others are more bearish. “This is the most vulnerable market there has ever been,” said , in a recent podcast.

He has a long record of spotting doomed investment frenzies—Japan’s market surge in the late 1980s, the dot-com craze of 1998 to 2001 and the housing mania that followed a few years later. High valuations are routinely followed by market slumps, he said.

Related Stories:

S&P 500’s P/E Is Actually Lower Than Official Number, BofA Says

Why Are We Still Using the P/E Ratio?

Elevated Stock Valuations Will Not Stay High for Long, Says Market Sage

Tags: , , , , , ,

Broad Foundation Appoints Greg Outcalt as CIO

He succeeds Katharine Krieger as investment chief of the $2 billion foundation.

Greg Outcalt

The Los Angeles-based Eli and Edyteh Broad Foundation announced Wednesday the appointment of Greg Outcalt as CIO, overseeing the foundation’s $2 billion in assets. Outcalt will manage the assets of the Eli and Edythe Broad Foundation, the Broad Art Foundation and the Broad families’ personal investments.  

Outcalt succeeds Katharine Krieger, who spent 23 years at the Broad Foundation, most recently as CIO. Krieger was recently appointed CIO of the Getty Foundation.  

Outcalt was formerly president and chief financial officer of Parea Capital before his appointment to the foundation. He was previously president and CIO of the Windhorse Family Office and had been senior managing director and co-CIO of Alliance Bernstein’s alternatives investment management.  

“Greg is an accomplished investor with a proven track record as a leader and mentor,” said Gerun Riley, president of the Broad Foundation, in a statement. “We have been impressed with Greg’s collaborative nature, sound judgment and his alignment with the mission and values of the Broad Foundations.” 

Want the latest institutional investment industry
news and insights? Sign up for CIO newsletters.

Outcalt earned a B.S. in business administration and accounting from Pepperdine University and an MBA from the Anderson School of Management at UCLA.  

The Broad Foundation was founded by the late businessman Eli Broad and his wife, Edythe. The foundation makes grants across Los Angeles, with the goal of helping young Angelenos from under-invested neighborhoods achieve upward mobility.  

“Our vision for Los Angeles is one where all Angelenos can shape and participate in an inclusive, clean and upwardly mobile economy,” states the foundation on its website. “By focusing resources on efforts to develop skills and strengthen career pathways, we believe we can help expand economic opportunity for Angelenos from historically marginalized communities and build a brighter future for Los Angeles.”   

Ashley Dennig Blodgett, director of investments at the Broad Foundation, was named a 2024 CIO NextGen. 

Related Stories: 

Katharine Krieger Appointed CIO of J. Paul Getty Trust 

Kresge Foundation Seeking Investment Director 

3 Investing Considerations for Endowments and Foundations for 2024 

Tags: , , , , , , , , ,

«