Ten Thousand Words: December 2019

Apparently, Confucius didn’t say “One Picture is Worth Ten Thousand Words” after all. It was an advertisement in a 1920s trade journal for the use of images in advertisements on the sides of streetcars. Even without the credibility of Confucius behind it, we think this saying has merit. Each month we share a few charts or images we consider noteworthy.

With another calendar year coming to a close and interest rates remaining "lower for longer", there are plenty of measures by which large-cap equities look to be priced highly. In Australia, the market PE multiple has continued to expand to record levels despite earnings expectations softening, as Morgan Stanley sets out. Australian consumer confidence, by the way, is at its lowest point for several years, according to the ANZ-Roy Morgan survey (but the implication for stocks is unclear). Looking globally, here are some of the ways by which stocks can be measured as over-priced or fully-priced: we have a high S&P 500 PEG ratio from Lohman Econometrics; Lazard Asset Management highlights most market-wide PE multiples are above average and in the US above the 90th percentile; and @HondoTomasz illustrates the relationship between valuation and future returns (high current valuation leading to lower future returns). Still, in the short-term, December has typically been a good month for stocks; while in the long run dividend growth is a greater driver of returns than valuation changes according to Man Institute. 



ASX 200 Price v Forward EPS
Source: Morgan Stanley



ASX 200 Earnings & Dividend Yield Gaps to Bond Yield

Source: Morgan Stanley



ANZ-Roy Morgan Consumer Confidence Index
Source: ANZ-Roy Morgan



The S&P 500 PEG Ratio pushes to highs

Source: Lohman Econometrics



Forward PEs in most equity markets is above average but in the US it's above the 90th percentile
Source: Lazard Asset Management



Future returns highly correlated to valuation


Source: @HonduTomasz



December typically a positive month for equities


Source: Financial Times



In the short term returns are driven by valuation changes; over 20 years by dividend growth
Source: Man Institute

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