A single image can often convey more about financial markets than a lengthy research report. Our new series, OppChart Weekly, comprises compelling charts covering different aspects of world markets—and their implications for investors. Today’s chart focuses on U.S. equity valuations.
Source of chart data: Bloomberg and Factset, 10/31/12. The Global Industry Classification Standard (GICS) methodology has been widely accepted as an industry analysis framework for investment research, portfolio management and asset allocation. The GICS structure consists of the 10 sectors above. Price-to-earnings ratio is a valuation ratio of a company’s current share price compared to its actual per-share earnings. The S&P 500 Index is a broad-based measure of domestic stock market performance. The index is unmanaged and cannot be purchased directly by investors. Index performance is shown for illustrative purposes only and does not predict or depict the performance of any Oppenheimer fund. Past performance does not guarantee future results.
As developed world yields remain low, many income-seeking investors are looking beyond traditional fixed income securities—like U.S. Treasuries and high grade corporate debt—into sectors such as dividend-paying equities. This phenomenon has driven up valuations in sectors that traditionally pay high dividends, including utilities and telecom.
But, as our “OppChart” demonstrates, investors may be bidding up utilities and telecom at the expense of technology, consumer discretionary and healthcare, sectors that are growing earnings at a considerably faster rate.1 Those sectors are trading below—and in some cases well below—their historic averages. Indeed, the value of the broad S&P 500 Index is below its long-term price-to-earnings average. This might be an opportunity for investors willing to forego current yields in some highly-valued areas of the market for the potential of long-term capital appreciation in undervalued sectors.
- Source of chart data: Bloomberg, 10/31/12.
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There is no guarantee that the issuers of stocks held by mutual funds will declare dividends in the future, or that if dividends are declared, they will remain at their current levels or increase over time.