The S&P 500 is at valuations higher than those in 1929 and rival those of 1999. Despite a recession, the index is 25% above where it was trading before the pandemic. The equity stampede is undoubtedly bullish about corporate earnings prospects and, by default, economic growth.
As the stock bulls party, bond investors are glum about future economic prospects. Bond yields are below where they were before the pandemic started. Current yields warn of paltry economic growth and little inflation in the future.
Who has it right? (My colleague Lance Roberts touched on this issue in this past weekend’s newsletter.)
Traditional equity valuation analysis frequently involves the comparison of a fundamental metric to share price. The result is often interpreted as quantifying the richness or cheapness of the numerator in the ratio. In the case of the more popular metrics like P/E or P/BV, that is price.