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Ten Years After the Financial Crisis: QE Hangover Ahead?: September 15, 2018 marked the 10th Anniversary of the fall of Lehman Brothers. What initially began with falling house prices quickly morphed into a full blown financial panic. Federal Reserve Chairman, Ben Bernanke, and Treasury Secretary, Hank Paulsen, warned we might slide into a 1930’s style Great Depression without drastic action.
July 23, 2018: It was another tough quarter for value investors. The S&P 500 Growth Index returned nearly 4 times as much as the S&P 500 Value Index as the “FANG” stocks continued to soar. This group of four stocks now makes up roughly 10% of the S&P 500 Index and accounted for nearly 2/3 of the S&P 500’s return year to date.
Growth Continues to Beat Out Value: Growth stocks continue to outperform value stocks by a large margin. The S&P 500 Growth Index returned a positive 1.9% this quarter while the S&P 500 Value Index lost 3.6%. The S&P Growth Index has now returned almost 3 times as much as its value counterpart since the start of 2017—up 30% vs. 11%.
You’ve Got to Dance? The S&P now trades at a decade high of roughly 23 times trailing 12 months operating earnings. This compares to the average multiple of around 17 times and the 2009 low of only 12 times, implying a potential correction of 25% or worse. Although this is not a prediction, the probability of a correction continues to increase as prices rise faster than earnings. The last time the multiple was higher was back in the internet bubble days and that did not end well for most investors.