The S&P 500's GAAP price-to-earnings ratio reached 30 at 2:35 PM on August 28, calculated from GAAP earnings over the prior four quarters. Such a level has appeared only during ten quarters of the tech frenzy from Q4 of 1999 to Q1 of 2022, with brief spikes during the pandemic and the GFC when earnings collapsed. Many analysts prefer lower forward or operating-earnings multiples that exclude charges like interest expense. Recent macroeconomic indicators show weakness: July payrolls rose by only 73,000 and May and June were revised down, leaving three-month net hires of 106,000. GDP growth has remained well below a 3% annualized pace.
At 2:35 PM on August 28, the S&P hit another fresh summit at 6501, and the real, not-rounded-up PE hit 30. That ratio's based on what matters most, GAAP earnings posted over the last four quarters, profits that really happened as opposed to usually over-rosy predictions. The only span in recent decades when big cap stocks have been this expensive: Ten quarters during the tech frenzy that stretched from Q4 of 1999 to Q1 of 2022.
The latest employment report from the Bureau of Labor Statistics disclosed that the U.S. added a meager 73,000 jobs in July, and revised the May and June figures radically downward, bringing total net hires for the past three months to just 106,000, less than one fourth the increase for the same period last year. Heather Long, chief economist at Navy Federal Credit Union, described the feeble data as a "game changer" demonstrating that "the labor market is deteriorating quickly."
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