As is extremely evident from the chart above there has historically been a strong relationship between the S&P 500 P/E and 5-year growth estimates. This makes sense as the valuation of the equity market tends to reflect both the short-term (next 12 months) and longer-term growth expectations for corporate earnings.
However, over the past year or so, growth expectations have rolled over dramatically while at the same time valuations (P/Es) have continued to surge ever higher.
The current gap between the two is clearly unprecedented.
For a sense of just how extreme this decoupling is…
Stocks still cheap? Translation – The S&P is about 600 points over-valued currently.
Grafikker fra Bloomberg
