Subject: Re: Latest from Howard Marks
In that 27-year period, when people bought the S&P at p/e ratios in line with today’s multiple of 22, they always earned ten-year returns between plus 2% and minus 2%..
...
The thread was closed by the moderator as being a "Non-actionable (Trolling) Topic" after a few responses, mainly positive.

Aww, maybe it just wasn't phrased in a way that was too vague or not sufficiently actionable?
The post should have said "If you are not satisfied with a total return of 2%/year or less, you should now sell all of your S&P 500 holdings".
: )


I calculated the average US trend real earnings yield for each of the 108 calendar years 1917 to 2024 inclusive. (effectively the inverse of CAPE, just with a slightly different smoothing method for the real earnings history)
I took the average of the ten highest yearly numbers from that set to get a feel for what "really high valuations" might look like.
The current reading is about 10% above that.

FWIW the ten highest years of average valuation level in calendar order were 1997-2001 inclusive, 2019-2022 inclusive, and 2024. You have to get down to rank 25 before you get a year before 1996.

OK, let's say it truly is different this time. Figures before the 1990s are irrelevant to the modern world.
So, looking at the same data a different way: the average trend earnings yield since X years ago is almost the same for any X you choose in the range 15-35 years (plus or minus only 0.1%). Could be 2010 to date, could be 1990 to date, or anything in between.
Today's S&P 500 valuation level corresponds to being 45% more expensive than any one of those averages based on smoothed real earnings. Much higher in terms of average price-to-sales, but ignore that.

That's not a prediction of a market crash, but one should expect low broad market returns starting from such high prices for the same old set of future earnings, even if valuation levels stay this high on average in future (which I doubt, personally)

Jim