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GRAPH OF THE MONTH

Are markets cheap after the current fall in equity prices?
Has a recession already been priced in?

The graph below shows CAPE for the different regions in a historical context. All three regions included saw CAPE ratios rolling over lately after the market fell abruptly during the last quarter of 2018. On a relative basis, US valuations are still richer than counterparts of the Eurozone and Japan. Compared to their own history, the US remains rather expensive (26% above its average) as does the Eurozone (23% above its average).

CAPE for the 3 main regions

All measures have their flaws. Indeed, CAPE multiples would automatically come down slightly next year as bad 2009 earnings figures drop out of the 10-year moving window in the denominator. This being said, earnings expectations for the next few years do seem overly optimistic in a lower growth environment.