There was little change in the long term conditions from last month, despite a significant run up in the S&P. The 12 month trailing GAAP P/E actually fell a little, from 25.0 down to 23.5. How did that happen? In the first month of a quarter, 100% of the companies have reported earnings for the previous quarter being reported, and a quarter that is now 5 quarters old rolls off the back and is replaced on the top of the string with the latest (usually better) quarter. That can represent quite an improvement, losing a low number and replacing it with a higher number. That is what happened in this case. The 23.5 is moderately overvalued compared to my trimmed 30 year average of the 12 month trailing GAAP P/E of 19. I like this measure of the P/E as opposed to the Wall St. usual of the "forward P/E", which is just a guess, and I would not even call it an educated guess. The guess is based on an assumption that most of the factors in the economic system will remain the same. Many times that is a good assumption, but there is no warning when the assumption turns out to be wrong. Therefore, to me it is useless. Heck, I can guess as well as those guys, let's see, GDP was +2.5% last year, we have tax reform, so I'll guess 3.0% this year. That was easy. The 12 month trailing GAAP P/E numbers are all facts which tell me what the P/E factually is, no guessing. You just need a different baseline to compare it to instead of Wall St.'s 16, which is their forward average, so I got the data from the S&P website and figured it out, and they only show 30 years of quarters. I had to trim out the aberrations of the major recessions like 2000-2002 and 2008-2009.
GDP growth is steady and interest rates are still benign.
The chart looks good, and as far as I am concerned, the long term bull market rolls on.
Edited by Rich C, 17 January 2018 - 11:35 AM.