TINAA

[from Liz Ann Sonders]

There are myriad metrics which can be used to value stocks individually; or the market overall.  It’s admittedly difficult to decide which valuation metrics are the most relevant at any point in time.  I keep a running tab of 13 of them—some of which are quite common, and others likely less well-known.  As you can see in the table below, I’ve arrayed them in descending order, from those which declare the market to be inexpensive to those which declare the market to be extremely over-valued.  The metrics at the top are interest rate- and/or inflation-based; and given today’s still-easy financial conditions, stocks still look fairly reasonably-priced.

But I want to call out one metric in particular—the S&P 500 dividend yield.  I was fooling around with a number of charts and data points last week, and had my research assistant put together a simple chart comparing the 2-year U.S. Treasury yield to the S&P 500’s dividend yield, as you can see below.  Just last week, the former moved above the latter for the first time in about a decade.

My friend Jason Trennert at Strategas Research Partners wrote about this indirectly last week in a research post.  He’s been calling the environment in which we’ve been investing since the financial crisis “TINA” (there is no alternative).  What’s meant by that acronym is that investors have been forced out the risk spectrum and into equities due to the paltry yields offered on safer fixed income securities.  Last week, Jason added an “A” to TINA; because “there is now an alternative” (TINAA), with even shorter-term government debt now yielding more than stocks.