With a closing P/E ratio over 17 and a VIX under 11, Deutsche Bank's David Bianco is sticking with his cautious call for the summer. Their preferred measure of equity market emotions is the price-to-earnings ratio divided by the VIX. As of Friday's close, this sentiment measure has never been higher and is in extreme "Mania" phase. Deutsche's advice to all the summertime-'chasers' - "wait for a better entry."
Via Deutsche Bank,
We find the current PEs demanding.
S&P median PE at 18.9, non-financial PE at 18.1 and trailing PE at 17.5 are all elevated vs. history.
And the P/E to VIX ratio suggests we have shifted from compacency into mania...
Don't Chase...
Since 1960, there have been 10 years when S&P materially advanced to new highs during the summer, but only 2 years (1964 and 1995) when it was not a post recession/bear market rebound and the market retained the summer gains until year end.
1968 and 1980 summer highs were post bear markets; 1985, 1989, 1997, 1999 summer high followed by a late summer/fall correction; 1987 and 1998 suffered a bear market (“1987 crash” and “1998 Russian default).
But what about all the money on the sidelines?... and the great rotation...
Source: Deutsche Bank