The post February market correction rally may be one negative event away from going up in smoke.
All it's going to take is investors giving a hoot about stock valuations again. The S&P 500 price-to-earnings multiple on a trailing four quarters basis has surged to a historically elevated level of about 20 times. While that is down from 23 times at the S&P 500's peak on Jan. 26, 2018, the level is "sufficiently high" to check the box for "elevated" valuation conditions, says LPL Financial.
"[This level of] valuation] suggests an above-average bear market decline when the [negative market] catalyst arrives," LPL Financial thinks. The valuation picture gets even more worrisome when stepping out of the S&P 500 and drilling into the red-hot Nasdaq Composite.
Forward Price-to-Earnings Multiples
- Facebook (FB) 33 times
- Amazon (AMZN) 258 times
- Netflix (NFLX) 252 times
- Google (GOOGL) 63 times
- Nvidia (NVDA) 51 times
- Intel (INTC) 26 times
- Salesforce (CRM) 745 times
- Adobe (ADBE) 65 times
No wonder why Warren Buffett can't find anything to spend $116 billion on.
Amazon, Alphabet and Nvidia are holdings in Jim Cramer's Action Alerts Plus.