Valuation metrics and multiples approached historic highs early this year (CNBC). As equity markets have rocketed higher from their March 2020 lows, these expanding multiples can cause worry for some investors. One multiple that we specifically watch is the P/E (Price/Earnings) multiple. When P/E levels near historic highs due to large overall price increases in the market, we pay extra attention to the denominator of the equation, earnings.
We feel it can be worrisome if prices continue to expand if earnings do not follow suit. This can cause P/E valuations to inflate beyond what is reasonable. Fortunately, forward P/E multiples have contracted thus far this year. We continue to watch other fundamentals as well, with expectations that they will continue to improve through the remainder of the year.
The opinions expressed here reflect the judgment of the author as of the date of the report and are subject to change without notice. The material has been prepared or is distributed solely for information purposes.
All investing involves some degree of risk, whether it is associated with market volatility, purchasing power or a specific security, including the possible loss of principal. Stocks offer long-term growth potential, but may fluctuate more and provide less current income than other investments.