On valuations of the S&P 500

The S&P 500 trades at 4.8 times book value, a free cash flow yield of 3.3% and 20.6 times 12 months forward earnings. This is far higher than the 10 year average and looks difficult to sustain longer term in the current interest rate environment. 2 comments however: 1/ High valuations alone are not a good indicator of the short-term direction of the stock market. As Keynes rightly pointed out “Markets can stay irrational longer than you can stay solvent.” And 2/ Once we exclude information technology, valuations are more in line with the historical average. At ECP, we continue to find investment opportunities outside of the trodden ways on the US stock market.