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4 Insights from the J.P. Morgan Guide to the Markets (3Q15)

Frankie Says Relax

J.P. Morgan Asset Management recently released their Guide to the Markets for the 3rd quarter.

Some very interesting observations can be made from the charts in this report.

1. The S&P 500 is Overvalued – But Not By Too Much

S&P 500 Valuation Measures

Relative to its 25-year average, the S&P 500 is overvalued by almost all measures. But the gap is small and the market’s forward P/E of 16.4x is well below the 27.2x peak the market saw on March 24, 2000. On a cash flow valuation basis, the S&P 500 is right at its historical average.

2. Some Empirical Proof of Value Investing’s Power

P/E Ratios and Equity Returns

Since 1990, stocks with low forward P/E ratios have on average generated higher returns than stocks with high forward P/E ratios, regardless of the overall stock market’s valuation. This is value investing at work.

3. Don’t Fear Rising Rates… At Least Not Yet

Interest Rates and Equities

Although interest rates have never been as low as they are today, rising rates have historically been associated with rising stock prices – to a certain point (which seems to be a 5% yield on the 10-year Treasury).

4. Frankie Says Relax…

Stock Market Since 1900

No matter what short term events are happening around us – wars, booms, crashes, and crises – just take a look at the chart above and relax. If you’re investing for the long-term and you truly believe in the brilliance and ingenuity of the American people to overcome any challenge, then you and your money will be just fine.


Want more charts? Check out the full J.P. Morgan report below or download it as a PDF here.