High valuations do not trigger a recession
The number of investors and media outlets suggesting that high valuations are likely to cause the next recession seems to have increased lately. However, valuations are seldom the sole trigger for an economic downturn as today’s graph shows. The price/earnings (P/E) ratios of the S&P 500 Index have varied greatly just before the start of past recessions. If anything, P/E ratios were somewhat below the long-term average ahead of a recession. Perhaps it is the vivid memory of the burst of the dot-com bubble, and the economic downturn that followed it, that has led investors to believe that high equity valuations are associated with future recessions.
As a senior portfolio manager I use charts to illustrate financial issues every day. I tweet my favorites as @jsblokland and was named 'one of the 50 most important people for investors to follow in 2018' by MarketWatch.
Previous editions of the daily sketch can be found on my personal financial markets blog. All graphics provided are collected from Bloomberg data and public websites. They do not always reflect my personal opinion and may also not necessarily reflect the opinion of Robeco. Please cite all references or quote the original source if replicating content.
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