News this past week
- ECB keep monetary policy on hold
- Fed Governor makes case for rate rise despite poor US data
- Global financial assets sell-off late in the week
- UK services sector strong, whilst trade deficit decreases
- Chinese trade data encouraging
Richard Stutley of Momentum Global Investment Management shares his view:
When people say equity markets are expensive they generally mean price multiples are high. And it’s true. This morning the price-to-earnings (PE) ratio of the S&P 500 index stands at 20 times, 20% higher than its average over the past 50 years, even when we allow for the market crashes (and resultant distortions this created in the PE ratio) of 1972, 2000 and 2007. Does it matter? History shows that investing when PEs is high leads to markedly worse returns, so the answer appears obvious. Or is it?