Should Stocks Fear Rate Hikes ?

While day after day we are bombarded with musings from talking-heads proclaiming that no matter what happens in the future, buying stocks and buying more stocks is the way to go, the data has a different story to tell. As Goldman Sachs notes, at a forward PE of 17.5x, the equity market looks more expensive today than it was during any of the last four cycles. Furthermore, as Goldman puts it, we find it more challenging to rationalize the current high PE multiples.
Via Goldman Sachs,
The PE ratio for the S&P 500 based on a 4-quarter trailing sum of earnings currently stands at 18.1x. This compares to values of 13.6x, 16.1x, 29.0x and 19.1x at the start of the last four hiking cycles, respectively. When the PE ratio is based on an estimated 4-quarter forward sum – which is the valuation metric preferred by our equity strategists – equities look even more expensive. At a forward PE of 17.5x, the equity market looks more expensive today than it was during any of the last four cycles except for hikes than began during the tech bubble of the late 1990s.

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