Category Archives: Stocks

The S&P 500 Is Still Valued Below The Average Forward P/E Of The Last 30 Years

JP Morgan Funds Twitter account posted a nice graph on Twitter today showing that, even while the S&P is trading near an all time high, this rally could go a lot further. The S&P 500 is still trading below the average forward P/E of the last 30 years according to the graph. According to this chart the S&P 500 is fairly valued and we are not experiencing some kind of bubble. Of course earnings will need to keep growing in the future to keep justifying a higher price.

JP morgan S&P 500 forward price equity graph chart 20 years showing fair value

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The Dow Jones Index Has Only Been Up For Five Straight Years Three Times Earlier In History

The Dow Jones Industrial Average Index(Dow Jones Index) has had an incredible run the last five years. Coming from a low of 6500 in February 2009 the Dow Jones Index has been making new all time highs a few times since this year. At this moment the index is currently trading near its all time high of 16,000.

For the last five years (since 2009) the index has ended every year positive. As the image below shows, this is actually a very rare occurrence which has only happened 3 times before. It will be interesting to see whether or not the Dow Jones Index will make another year with a positive return next year. The image below shows that only one time before the Dow Jones managed to pull off six consecutive higher years.

Performance of the dow jones industrial average after five postive years

Why Have Luxury Stocks Perfomed So Well The Last Few Years?

Luxury stocks have shown some very stunning results over the last few years. Making new all-time highs the past few months. Which is, of course, very surprising because we are supposedly in a modern day depression with high unemployment and high defecits. You would expect luxury brands to perform very poorly. But the opposite seems true.

I’m going to first show you some charts of luxury stocks and then give you a possible explanation for this.

Compagnie Finaciere Richemont SA. Key brands: Cartier, Montblanc, Chloe, IWC, Piaget, Vacheron Constantin, Baume & Mercier and Lancel.

Compagnie Financiere Richemont SA stock price

LVMH Moët Hennessy Louis Vuitton. Key brands: Louis Vuitton, Marc Jacobs, Guerlain, Givenchy, Moet & Chandon and Hennessy.

LVMH stock price

Burberry Group PLC. Key brand: Burberry.

Burberry Stock Price

Why have luxury stocks performed so well? I tend to think we should look at the buyers of luxury stuff. The top 10% of wage earners and people with a high net worth.

This is an interesting article about income and wealth distribution in America of which I will use a few tables here.

The table below shows the distribution of income and wealth in the US between the different percentiles of the population.

income and wealth distribution

This table shows how the income is divided:

Income distribution in the United States

From the article: “In terms of types of financial wealth, the top one percent of households have 35% of all privately held stock, 64.4% of financial securities, and 62.4% of business equity. The top ten percent have 81% to 94% of stocks, bonds, trust funds, and business equity, and almost 80% of non-home real estate.” This is shown in this table:

Stocks owned by top percent

So we can conclude that the richest 10% of the country own almost all stocks (81%), while the middle and lower class are more dependable on their principal home (60%) for their net worth. While of course a large portion of American society has no or even a negative net worth.

If we now look at how stocks, houses and wages have performed since the 2009 bottom we can see why luxury stocks are doing so well.

The S&P 500, makeing a new all-time high as I write this. Don’t forget dividends:

S&p 500 chart 5 year

House prices in the US (Case-Shiller index):

House prices us Calculated Risk

Wages in the US. Percent change from previous year. You can easily spot that on average wages have grown very slow in the last few years. Barely keeping up with inflation.

Wages US percent change from year ago

The rich 10% of America have profited the most the last few years because stock prices went up while housing and wages remained low. This in turn has resulted in higher stock prices for luxury brands.