The Pandemic And Stocks
Published May 15, 2020, 6 p.m. EST
The Standard & Poor's stock index closed Friday 2.3% lower for the week, and is 24.6% off the epidemic low of March 23. Amid the worst economic crisis in modern history, here's what it means to retirement investors based on a historical perspective and facts about earnings, which ultimately is what drives stock prices.
Historically, shares in America's 500 largest publicly traded companies are priced at a multiple of 16 to 19 times their expected profits. That valuation range of stocks in 'normal' times is shown in the two solid red lines. In recent weeks, the S&P 500 has been priced near the high end of the normal valuation range. The actual price of the S&P 500 is the black line.
The dashed red lines apply the historical valuation range, of 16 to 19, to the latest consensus earnings forecast from Wall Street's analysts surveyed by Thomson Reuters IBES. .
The actual earnings of the S&P 500 companies per share in 2019 was $162.97. As of May 4, 2020, the 2020 and 2021 estimated S&P 500 operating earnings per share was $130.90 for 2020 and $168.04 for 2021.
The Coronavirus bear market low of the Standard & Poor's 500 index, to date, was 2237.39 on March 23, 2020. Closing Friday at 2,863.70 Friday, the S&P 500 is priced for the partial shutdown of the economy to continue through the end of 2020 and a sharp recovery in 2021. Even if prices head sideways, volatile spikes and downdrafts are likely in the days ahead.
The Standard & Poor's 500 (S&P 500) is an unmanaged group of securities considered to be representative of the stock market in general. It is a market-value weighted index with each stock's weight proportionate to its market value. Index returns do not include fees or expenses. Investing involves risk, including the loss of principal, and past performance is no guarantee of future results. The investment return and principal value of an investment will fluctuate so that an investor's shares, when redeemed, may be worth more or less than their original cost. Current performance may be lower or higher than the performance quoted.
Nothing contained herein is to be considered a solicitation, research material, an investment recommendation, or advice of any kind, and it is subject to change without notice. It does not take into account your investment objectives, financial situation, or particular needs. Product suitability must be independently determined for each individual investor.
This material represents an assessment of the market and economic environment at a specific point in time and is not intended to be a forecast of future events or a guarantee of future results. Forward-looking statements are subject to certain risks and uncertainties. Actual results, performance, or achievements may differ materially from those expressed or implied. Information is based on data gathered from what we believe are reliable sources. It is not guaranteed as to accuracy, does not purport to be complete, and is not intended to be used as a primary basis for investment decisions.
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