This brings us to the moving target of valuations. It has been a very good year for the stock market and a very good October so far. However, as of Friday, the S&P500 was trading at 2,575 or about 18.1 times the earnings expected by analysts for the next 12 months. This is about 13% above its 25-year average valuation. If five years from now we are back to average valuations, stock prices would have to grow 2.5% slower per year than earnings. If earnings grow by 5% on average, stock prices could only growth by 2.5%. Even adding back 2% for a dividend yield implies just a 4.5% annual average total return for the S&P500 index.
It also is crucial to recognize that we are in a different place overseas. Europe is in an earlier season of economic expansion and monetary normalization and, even with an expected announcement regarding tapering ECB QE this week, European stocks look much cheaper in relative terms than their U.S. counterparts. Similarly, Emerging Markets should have much more room to grow with interest rate cuts possible in Brazil and Russia this week.
Local salaries are tracked and split into 10 different buckets by the U.S. Census Bureau. The fastest-growing group of earners between 2005 and 2015 were those households bringing in between $150,000 and $199,999 a year, followed immediately by households in the highest category tracked by the Census Bureau: $200,000 a year or higher.
Death of Malls
But now, the forces buffeting the retail industry are diminishing Lord & Taylor’s presence as a New York institution. The company that owns the department store chain, Hudson’s Bay, said Tuesday that it was selling off the flagship store to WeWork, a seven-year-old start-up whose office-sharing model is helping to reinvent the concept of work space.