Bespoke’s Daily Sector Snapshot (view sample here) is a popular one-page report that subscribers use to stay on top of sector themes. One data point that has stood out recently is where valuations stand within their historical ranges (past ten years). As shown below, the only sector with a current valuation that’s in the bottom half of its range over the last ten years is Financials. Every other sector is currently trading with a valuation above the 60th percentile.
Utilities and Technology are currently extremely elevated in the 97th and 99th percentiles, respectively. The trailing price-to-earnings ratios for Consumer Discretionary and Communication Services are also in the top 10% of all days of the past 10 years. Finally, the S&P 500 as a whole has a current P/E that is higher than 89.1% of all readings over the last ten years.
The chart below shows the Technology sector’s trailing price-to-earnings ratio over the past ten years. In the time since the dramatic sell-off around this time last year, valuations have more than recovered rising from a low of 16.11x earnings on January 3rd to 24.75 on Friday. In the chart below, the red dots indicate the only times that Tech had a higher P/E than now over the last ten years. As shown, in the past decade there have only been a handful of times, just nine trading days in fact, that the Tech sector’s P/E ratio moved above 24.75; 0.4% of all days in that time frame. Those days came in two pockets. One in February and March of last year and the other in late December of 2009. While Tech is at a premium compared to the past decade, it is still well off of levels from the late 1990’s/early 2000’s around the time of the tech bubble. The current valuation would need to more than triple to reach the 1999 peak of 82.62x earnings. Start a two-week free trial to Bespoke Institutional to access our Daily Sector Snapshot and much more.