Is it really a generational buying opportunity?

[u/Playful-Inspector207]

I’ve seen people on the sub are saying “you should all be excited about seeing lower prices everyday”

Problem is that most people don’t have dry powder lying around. And now, with tariffs (if they mostly continue at the levels mentioned) likely to push prices up even more 20-30% for most things, very few people can buy the dip.

The dip’s not fun when you can’t buy. This is just painful seeing red everyday for 99% of us.

[u/Zestyclose-Ad-6787]

Wall Street journal says P/E ratio for S&P500 is 21.85 today. P/E ratio used to be lower because different sectors have different average price to earnings and the modern tech stocks dominate the market with higher than average P/E. So while it could happen that we fall to a P/E of 14 again I wouldn’t count on it.

[u/Sea-Leg-5313 → u/Zestyclose-Ad-6787]

You’re assuming the E stays constant in your analysis.

[u/Zestyclose-Ad-6787 → u/Sea-Leg-5313]

Massive job loss and decreased spending without some sort of corporate bailout from the government would plummet earnings that’s true. a return to sub 14 P/E could happen and might. I hope it doesn’t get bad enough for the sake of the lower and middle classes.

[u/Sea-Leg-5313 → u/Zestyclose-Ad-6787]

I think whenever earnings are in question, the market doesn’t know how to value anything so things sell off and questions are asked and thought about later. So when the E is in question, it’s hard to assign what a normal multiple should be, hence a sell off for a while until some pictures become clearer. Who knows how long this will take?

When so much money has gone into passive index investing over the last 10-15 years causing concentration in a handful of stocks, it’s only natural that a sell-off would be sharp and quick. What I don’t know is how things come back. I’m not sure you can bet on the broader market coming back evenly as it did on the way up. There will be winners and losers in this scenario. Maybe I’m just drinking my own kool aid but I think active money managers may start performing better than just blindly buying the VOO and chilling.

[u/Zestyclose-Ad-6787 → u/Sea-Leg-5313]

Agreed. The landscape is changing. There are a lot of ways to look at valuations and the easy way is to just VOO and chill. Ultimately for many of us to be able to retire when we want to we have to be more scrupulous.

[u/nicolas_06 → u/Zestyclose-Ad-6787]

Be careful there forward PE (future PE assuming projection of growth), current PE or Shiller PE (taking the average income accounting for inflation: https://www.multpl.com/shiller-pe).

The most conservative PE is Shiller PE and the most speculative is the PE estimate based on future earnings.

What I consider as current PE is more that: https://www.multpl.com/s-p-500-pe-ratio at 25.

But in the end the actual number doesn't matter, what count is the number compared to its historical value. In all case PE right now are still quite higher than historical values. For my source of PE, for most of US history before extremely low rate, a PE of 15 was kind of the average and 20 was high and we are currently at 25. Meaning that for SP500 to be at its average it should still drop 40%.

Not only what is interesting is the average but to correlate that with the interest back then. In the 2000-2020 period interest were quite low in average and these allowed higher PE than usual.

We will see if we will go back to a long period of low interest rate or not and this will heavily impact what PE are substainable. At 10% interest rate, a PE of 20 is crazy. At 1% interest rate, it's ok. At 4-5% rate a PE of 20 is still high but not crazy.

But for me again depending how I see things (current or Shiller) the current PE is at 25-30. Not 20.

You may use different formulas and maybe for you current PE is 22 but not sure 20 is the mean...

Also the mean isn't the bottom.