Click to enlarge

Source: Bloomberg


The pushback to yesterday’s chart (Sell Side Indicator: Wall St’s Improving Optimism) was rather fierce. Whether that reflects confirmation bias on the part of under-invested readers is unknown.

But to provide equal time and to make sure that I am not engaging in my own confirmation bias, consider the chart above. It comes from the other Bianco — David Bianco  of Deutsche Bank. It “compares the price-earnings ratio for the Standard & Poor’s 500 Index with this quarter’s average close for the Chicago Board Options Exchange Volatility Index. (The VIX is based on S&P 500 options).

Bianco’s P/E-VIX shows a lack of concern as of August 9th. He noted that “while stocks have room to extend their advance since March 2009, increased volatility is likely to accompany any further gains.”

There you have it: Stocks may rise relative to earnings but we should be prepared for more price swings.



David Wilson
Bloomberg, August 14, 2013

Category: Investing, Psychology, Sentiment

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.

3 Responses to “S&P 500 Valuation vs VIX Shows Complacency”

  1. Willy2 says:

    Weird ratio. Too many “moving parts” IMO.

    I also have a number of indicators that show there’s still A LOT OF complacency while one (VERY RELIABLE) ratio continues to send warning signals. And two other interest rates tell me that something dangerous could be afoot.

  2. Herman Frank says:

    The only safeguard for the investor is to ONLY buy or sell with a limit order, either up or down. Don’t start the day throwing some orders in the system at “market-rate”. Remember, there’s some high-frequency traders who know what you’ve put in ….. and they are ahead of you in preparing your bed of thorns.

    Instead, with percentage swings in prices during the day, set your price and it’ll probably be executed in that one second the market was there.

    Manage your own destiny! Set your price!

  3. [...] S&P 500 Price/Earnings to VIX ratio (August 9, 2013) | David Bianco (Deutsche Bank) $SPX’s PE/$VIX ratio at 1.2x says investors are borderline complacent right now: “While stocks have room to extend their advance since March 2009, increased volatility is likely to accompany any further gains.” [Ratio is despondent <0.8x & complacent >1.2; SPX topped out at 1.4x in 2000, 1.5x in 2007.] [...]