Most investors are trying to forget about August performance as quickly as possible, but we wanted to highlight a noteworthy data set about the month before it gets too far into the rear-view mirror. At the end of every month, we run our decile analysis of the S&P 500 to see which stock characteristics drove performance the most. One characteristic we look at is valuation, and in August, valuations played a big role in performance.
Below we’ve broken up the S&P 500 into deciles based on P/E ratios (trailing 12-month). Decile 1 contains the 50 stocks in the S&P with the lowest P/Es at the start of August, while decile 10 contains the 50 stocks in the index with the highest (or negative) P/Es. Each bar in the chart shows the average percentage change in August of the 50 stocks in each decile.
As shown, the 50 stocks in the S&P with the lowest P/E ratios at the start of the month fell an average of 11.5% in August! The next two deciles with the lowest P/E ratios fell more than 5% as well. On the other end of the spectrum, the 50 stocks with the highest P/E ratios fell only 0.78% in August.
You’ve certainly heard a lot about the “death of value investing” recently, and this is why! We have to think that at some point the scales will tip and head in the other direction. Start a two-week free trial to Bespoke Premium to see our full decile analysis report for August.