Random Thoughts

History reminds us that the first two quarters of a presidential election year have been positive for stock prices.

Since WWII, the S&P 500 gained an average 1.2% in Q1 and 2.3% in Q2, rising in price 61% and 67% of the time, respectively.

YTD, the S&P 500 is up more than 2% and higher by about 12% since early October, while 2020 EPS estimates have come down.

Even though valuations don’t make a good market-timing tool, one can’t help but wonder if the ongoing equity advance is discounting too much of an anticipated upward revision to 2020 EPS and that a digestion of recent gains might be appropriate.

Indeed, the S&P 500’s P/E on next-12-month (NTM) EPS is now 19.4x, surpassing the P/E just prior to the 13-day decline of 10.2% in early 2018.

Despite today’s 1.8% 10-year yield vs the 2.70% rate in early 2018, the sum of NTM P/E and rates are similar at 21.2 today versus 21.9 in 2018.