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Only One S&P 500 Sector Trades Below Its Economic Book Value

Only One S&P 500 Sector Trades Below Its Economic Book Value

This report analyzes[1] market cap, economic book value, and price-to-economic book value (PEBV) ratio for the S&P 500 and each of its sectors.

I analyze other fundamental and valuation metrics for the S&P 500 and its sectors in these reports:

These reports leverage cutting-edge technology to provide clients with a cleaner and more comprehensive view of every measure of profits[2]. Investors armed with my firm’s research enjoy a differentiated and more informed view of the fundamentals and valuations of companies and sectors.

S&P 500 PEBV Ratio Jumps to Highest Level Since September 2018

The PEBV ratio for the S&P 500 rose from 1.1 at the end of 2019 to 1.7 through 2Q20, or its highest level since mid-2018, and one of the highest levels since 2004. See Figure 1. This ratio measures the level of expectations for future profits compared to existing profit. At 1.7, the S&P 500’s valuation implies the profits of the S&P 500 will increase 70% from current levels.

Only one S&P 500 sector trades below its economic book value (excluding Energy, which has a negative economic book value), as I’ll show below.

Figure 1: TTM PEBV Ratio for the S&P 500 From December 2004 – 8/11/20

Ranking the S&P 500 Sectors by PEBV Ratio

Figure 2 ranks all 11 S&P 500 sectors by change in PEBV ratio from the end of 2019 to 8/11/20.

Figure 2: TTM PEBV Ratio as of 8/11/20 by Sector

With a PEBV of 0.9, investors expect the Financials sector’s profits to decline, permanently, by 10% from current levels. On the flip side, investors expect the Real Estate sector to improve profits more than any

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