Our Insights

This month, Jason Weaver discusses market sentiment, valuation measures and international valuations.

Market Sentiment

Stock market returns are highly correlated to corporate earnings. However, high profits do not necessarily mean a high stock price. And big losses do not always lead to a low stock price. The stock market can outpace earnings if it expects future earnings to grow.

Valuation Measures

P/E Ratio

This is the cornerstone to valuing stocks.

They are calculated by dividing the stock price by the earnings per share.

The lower the P/E ratio, the more earnings power investors are buying with each share.

CAPE Ratio

These are similar to the P/E ratio and is used to determine whether a stock is over-or under-valued.

This considers the impact of economic influences by comparing a stock price to average earnings over a 10-year period.

International Valuations

International Markets have trailed the US over the past 10 years. And markets appear to be undervalued relative to the US by traditional valuation measures. Many analysts believe that given relative value, these markets are poised to outperform.

november 2019 – 3 in 3

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