After last week's brief war with North Korean-inspired volatility explosion (and just as rapid subsequent retracement), some have asked if the resulting market decline, which is down a further 1% on today's latest terrorist attack in Spain, has made stocks more attractive. Here is the quick answer according to Bank of America: based on the 20 most widely used valuation metrics, the S&P remains substantially overvalued on 18 of 20 valuation metrics, the only exceptions being free cash flow, helped by depressed capex), and relative to bonds - the Fed's favorite indicator which got a shout out in yesterday's FOMC minutes - where yields remain depressed thanks to $18 trillion in global central bank purchases.
Some brief thoughts on valuation from BofA's Savita Subramanian:
The S&P 500 forward P/E expanded in July to 17.7x from 17.4x—its highest level in 13½ years—as the market rallied more than estimates climbed. The valuation backdrop forthe S&P 500 remains the same: US stocks trade above historical average levels across nearly all metrics we track, but equities continue to look attractive relative to bonds, where the equity risk premium (ERP) is more than 50% above its long-term average. Multiples expanded across most sectors last month, with the exception of Industrials and Staples—both of which now trade in-line with historical average levels. Energy—which was among the best-performing sectors in July—saw the most multiple expansion last month. The sector continues to trade at a record discount to history on relative Price/Book, but grew increasingly expensive on relative forward P/E as analysts revised down EPS estimates amid the continued weakness in oil prices.
And a bonus chart: with the S&P just still just shy of all time highs, here is BofA's summary of the distribution of global "minor" and "major" geopolitical risks.