Wednesday, June 29, 2011

S&P 500 Sectors Relative P/Es

Today’s charts show the forward P/Es of the 10 S&P 500 sectors relative to the overall market’s valuation multiple on a daily basis, though based on weekly forward earnings data for the sectors. Stable sectors are all trading at or near recent cyclical high P/Es. Since the market bottomed during March 2009, there has been a rally in the valuations of the Stable sectors. Among the Stable sectors, Telecom Services is the most expensive, selling at more than a 30% premium to the market. The cheapest of the Stable sectors is still Health Care. It is selling at a small discount after selling at very large discounts during 2009 and 2010. In the past it sold at a premium. However, yesterday’s court ruling in favor of ObamaCare may put a lid on the sector for a while.

Among the Cyclical sectors, Energy is the cheapest with a discount of 14%. However, it tends to trade at a discount to the market. Financials is also selling at a discount, which is also par for the course. Given the big hit to Bank of America and the ongoing mess in the mortgage market, this sector may remain earnings challenged for a while. The most expensive Cyclicals are Consumer Discretionary and Industrials, selling at 16% and 11% premiums. However, their earnings continue to rebound at solid paces, and they are probably best positioned to benefit from the resumption of faster economic growth following the recent soft patch.

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