With the S&P 500 hovering around 1,250, stocks are trading at 13.2 trailing four quarter earnings of $94.75.
“There is no actual ‘provable’ price-earnings multiple that investors can use to definitively state that this is X% cheap (or expensive),” the strategist said. “All those historical analyses you see rolled out are useless, because they almost always ignore interest rates.”
With rates very low by historical standards, it is hard to argue that a 13x multiple looks to be on the “cheap” end of the spectrum, he added.
“That said, U.S. stocks have been migrating to ‘cheap’ territory for a long time. The S&P 500 trading at 1,250 puts the index squarely in the middle of a very long term trading band,” the strategist noted. “Stocks may look cheap, but that is a trend that has been going on for half a generation and seems to lack a clear terminus. We need to ask ‘What will make them less cheap?’”
There are three answers to the question, he said: equities showing sustainable earnings power in another full-on financial crisis, progress on the U.S. budget deficit and a pickup in the U.S. employment market.
A bullish stance on U.S. stocks “needs to incorporate at least some of these scenarios to hold any real validity.”
iShares S&P 500 (NYSEArca: IVV)
