When the Federal Reserve last met at the end of April, Chairman Jerome Powell acknowledged that markets “are a bit frothy.” Now, some of that excess appears to exiting -- particularly if you discount the daily gyrations in meme stocks.
Yes, share prices keep setting new records, but they’re also looking less expensive on the way up as companies largely crush profit forecasts. The price-to-earnings ratio for the megacap FAANG tech shares like Facebook and Apple, which make up roughly a quarter of the S&P 500, sits just below 47, which is almost its exact average over the past five years and down from nearly 59 in mid-February. Indexes are the same: The S&P 500 price-to-earnings ratio is currently 30 after hitting an all-time high of 32 in late March.
In the eyes of JPMorgan’s Elyse Ausenbaugh, that cooling off means Fed officials likely feel little pressure to consider asset prices in their policy decisions as the last two-day meeting comes to a close this afternoon.
“Look at the five biggest stocks in the (S&P 500) and they’re actually trading at valuations that, relative to their history, aren’t all that unpalatable,” Ausenbaugh, a global markets strategist at the firm’s private bank, said on Bloomberg Television. “So I don’t necessarily think that the Fed is really having this perspective that they’ve got to manage or consider carefully as they determine what their future policy path is going to be.”
