On the minds of advisors - J.P. Morgan Asset Management

On the minds of advisors

Top questions on the minds of advisors

See what your peers are asking and read answers from our team of Global Market Strategists.

Featured Question

January 19, 2018

Do valuations matter?

The S&P 500 has had an impressive start to the year, rising over 4% year-to-date with only three days of negative performance. However, as the equity market has moved higher, investors have become increasingly concerned about valuation. While it is difficult to ignore the fact that the S&P 500 forward P/E ratio currently sits at 18.5x, well above its 25-year average of 16.0x, we believe elevated valuations may be justified for three reasons

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Low inflation and yields can support higher multiples

Source: BLS, Tullett Prebon, IBES Aggregates, FactSet, J.P. Morgan Asset Management.
Price to earnings is price divided by consensus analyst estimates of earnings per share for the next 12 months as provided by IBES. Core inflation is the year-over-year change in CPI excluding food and energy prices. Z-scores are calculated using a monthly frequency over the past 25 years. Data are as of 1/18/2017.

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