While the S&P 500 has doubled since Obama first took office, the index’s price-earnings ratio was lower than the 16.4 six-decade average for 38 of the rally’s 46 months, as earnings surged, data compiled by Bloomberg show.
The multiple is up 35 percent since March 2009, compared with the average expansion of 55 percent in bull markets since 1962, Bloomberg data show. For the past 2 1/2 years, the S&P 500 hasn’t climbed higher than 16 times earnings, compared with the average ratio of 17.4 in past rallies.
The valuation rose to a high of 13.8 from 7.3 during the first 15 months of the 1982 advance that pushed the S&P 500 up 229 percent, according to data compiled by Bloomberg. In the 1990s rally led by technology companies, it almost doubled to 28.5 during the eight years.
‘Glum to Glee’
“As a country, we go from glum to glee and glum to glee over and over again,” James Paulsen, the chief investment strategist at Minneapolis-based Wells Capital Management, which oversees about $325 billion, said in a phone interview. “After the 2008 recession and the tech bubble, we’re back at glum, so what comes next?” he said. “Confidence, and the ability to rebuild it, is our biggest asset for the future.”
Economists predict global GDP will increase 2.6 percent next year from 2.2 percent in 2012, the slowest since it contracted three years ago, according to a survey by Bloomberg. The pace of U.S. growth will be 2 percent in 2013, down from 2.2 percent this year, according to the median of 98 estimates.
The tumble since Obama defeated Republican candidate Mitt Romney, with 332 electoral votes to 206, pushed the benchmark gauge to 13.7 times reported profits, lower than the 15.5 average ratio since March 2009, according to data compiled by Bloomberg. Only one bull market since 1962 has ended with a lower valuation: the six-year cycle through 1980 in which the index gained 126 percent to 140.52, or 9.1 times profits.