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Narrow gap between cheap and expensive seen in US equity market

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November 18
3:19 AM 2013

Equity investors reportedly were not happy with the stock rally. Bloomberg said in its report that investors saw how the gap between expensive and cheap assets in the US equity market had been narrowing to a point that there are not much options left to consider. The observation followed after Standard & Poor's 500 Index this year saw its broadest rally to date at around 90%.

KeyCorp private banking unit chief investment strategist Bruce McCain, who oversees over USD20 million of assets for the firm, said, "We've seen a runup in prices in the market, and we don't think it's cheap anymore. Those who simply like to buy cheap and get a regression to the mean may have less luck."

US Federal Reserve Vice Chair Janet Yellen spoke to members of the US Senate Banking COmmittee recently and expressed her commitment to continue her employer's economic stimulus programs. Perhaps a reflection of investor response, the S&P 500 rose 1.6% to 1,798.15 last week, which was a new record for the benchmark gauge. It has since advanced 26% this year, which was on track to gain the biggest yearly return in ten years, Bloomberg said.

Data compiled by Bloomberg indicated that over 440 companies of the S&P 500 experienced gains this year. The increase promptly made valuations jump throughout the market.

Barrack Yard Advisors LLC founder Martin Leclerc said, "This market clearly has had a life of its own that's been divorced from a lot of economic reality, and so valuations are much higher. Everyone bemoans the fact that the set of companies selling at very good prices has really been diminished."

Spam maker Hormel Foods saw its valuation increased 33% to 20.3 times its estimated earnings in the last 12 months.Hormel's valuation was noticeably higher than the average mean of its peers before the bull market, data by Bloomberg showed. Valuations of power distributor CenterPoint Energy and pharmaceutical company AmerisourceBergen Corp had also climbed 30% and 61% respectively this year.

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