Dr. David P. Kelly of JP Morgan Asset Management quarterly deck is out. Its a regular favorite of mine, laden as it is with great charts that look at the very long term.

You can download the entire 69 page deck here.


click for ginormous chart

Source: JP Morgan Funds

Category: Analysts, Data Analysis, Investing, Markets

Please use the comments to demonstrate your own ignorance, unfamiliarity with empirical data and lack of respect for scientific knowledge. Be sure to create straw men and argue against things I have neither said nor implied. If you could repeat previously discredited memes or steer the conversation into irrelevant, off topic discussions, it would be appreciated. Lastly, kindly forgo all civility in your discourse . . . you are, after all, anonymous.

16 Responses to “S&P 500 Index at Inflection Point”

  1. Moss says:

    P/E compression, negative real yields. Real return about flat.

    Price of Gold up more than 4 fold..
    Price of oil up more than 5 fold.

  2. jdoc1951 says:

    In contrast to traditional thought P/Es declined as interest rates declined. Is this in response to disinflation/deflation?

  3. constantnormal says:

    Interesting how the PE keeps declining, at both ends of the range of price fluctuation … my guess is that this is a demographic-related thing, due to the greying of the boomers, and their population cohort becoming ever-more-conservative in all things.

    If that is the case, we can expect this value compression to continue for another 30-40 years … but it could also be due to the concentration of wealth in a smaller number of people, with the extremely wealthy being more conservative than the population median.

    Sure would be nice to see a study comparing population age distribution, concentration of assets, and PE ranges on the stock markets, going back as far as it is possible to reasonably fit the data … that would include the “Gilded Age”, from the 1870s to the early 1900s … that might shed some light on this phenomenon.

  4. WrteStufLA says:

    Or we could simply be viewing a secular triple-top or head-and-shoulders, in which case — watch out below!

  5. GeorgeBurnsWasRight says:


    Thanks for the link. Best long-term “big picture” info I’ve seen in one place in a long time.

  6. PeterR says:

    Low PE means higher stock prices are coming.

    Triple top at 1550 minimum IMO.

    If anything the post-2008 rally “looks” more energetic than the other two.

    “Don’t fight the Fed!”

    Fasten seat belts.

    PS – Could the payback for QE be fast and furious? You bet, but we ain’t there yet, not by any means!

  7. Pantmaker says:

    Great information well communicated.

    Key take away for me continues to be the current level of record profits are not sustainable. Also page 7 showing Shiller PE avg of 19…includes the internet bubble goofiness. Take that out and the number drops significantly…possibly a bit more realistic.

    Also interesting to see graphically how personal household debt reductions have basically just transferred to government debt increases…big whoop. Page 21 infuriates me.

  8. gman says:

    Chart reinforces how extremely overvalued the mkt was in 1999..we have been working down valuations ever since. If history is any guide we have another few years to go…but the power of QE may change all of that..

  9. thetruthseeker says:

    Anyone want to consider the fact that profit margins are at/near all-time highs (basically two standard deviations above long-term mean) so the PE ratio might be a little misleading. Just a thought.


    BR: You are conflating two different arguments: 1) Markets are at Peak earnings; 2) P/E is cyclical and always mean revert

  10. Concerned Neighbour says:

    Some (among) reasons justifying lower valuations:

    - can’t trust accounting (thanks FASB!)
    - can’t trust markets (thanks non-existent white-collar law enforcement!)
    - world economies on unsustainable long-term fiscal support (thanks politicians!)
    - world economies on unsustainable long-term monetary support (thanks Helicopter Ben!)
    - mediocre economic growth, and in some places negative
    - poor investor demographics throughout much of the developed world (thanks retiring people!)

    But instead of such lower valuations, we have QE-inspired lunacy. I maintain that in the not-too-distant future central banks will have made dot-com era stocks look cheap.

  11. Moss says:

    QEism no doubt.

  12. DRR says:


    Didn’t you read the latest headlines?

    “U.S. stocks fell, erasing earlier gains, after Federal Reserve policy makers said at the latest meeting they will probably end their $85 billion monthly bond purchases sometime in 2013. ”

    What happens to the market when QE+ ends?

  13. It’s almost straight out of Vitaliy’s book http://contrarianedge.com/ – perhaps we need a guest post from him to get his input on the P/E compression.

    It’s a trader’s market. Buy-sell-buy-sell.

  14. rd says:

    Much of the deck seems focused on comparing today to the last 10-20 years. Given that the longer term stock market graphs going back 30+ years show how bubbly the 1998-2008 period was, I distrust using any averages that are based on the past 10-20 years. The graph area under the 1998-2008 valuation curve is huge compared to the areas above and below the average lines for previous bull and bear markets.

    Do we really think that this time is different so that our baselines have permanently shifted, and the various valuation measures from the past century don’t apply to us anymore? Many of our current “low” valuations are actually in the top quartile of data from the past century. the 15 year comparison of dividend yields make it looks like we have reached a high dividend yield today, but it is still low by historical comparison even factoring in low interest rates and bond yields. The CAPE is quite high compared to averages going back to 1980 or before.

  15. houdini says:

    what’s really remarkable about the chart above is, what i like to call, the “angular momentum” of price and volume.. if you look at the trendlines, then you can plainly see that the velocity and slope of moves in both directions has dramatically increased over the past 10 years..

    also, the smooth hyperbolic pattern of the bull market (or bear cover, as you will) over the past 3 years is not indicative of the organized capitalist chaos which the market is supposed to reflect. its highly organized and quite predictable.

    this high level of organization is primarily due to electronic trading and computer algorithms which function based on extrapolated patterns of market behavior and produce predictions of future behavior which themselves become trades in the market.. you can view the market as a fractal in fact at some level. patterns feeding off of themselves and creating higher levels of organization. similar to the “mandelbrot set”.

    i can foresee a move higher in the market at this point.. possibly through the 2007 high. but definitely within a few points of 1500 on the s&p.. 1495 i take profits and sit on my hands.

  16. stonedwino says:

    Buy low, sell high…now is NOT a good time…