An excerpt from our weekly premium, ROIC-only newsletter, Making Cents, published yesterday:
The S&P 500 is now trading at 22x forward price-to-earnings (P/E), a level not seen since 2001, which implies possible overvaluation. But possible countervailing forces that could push the stock market higher are that interest rates are much lower today and that a post-pandemic recovery could boost earnings above expectations.
On the surface, I expect that the stock market will see weaker returns over the next 10 years than what it saw during the previous 10 years. Maximizing performance will largely depend on investing in secular, long-term growth companies at reasonable valuations and avoiding companies on the structural decline or early-stage companies that are wildly overvalued.