Why Bill Miller Thinks the Equity Market Isn’t Terribly Expensive



Bill Miller on the equity market

Bill Miller discussed the valuation of both the bond market and the equity market in the interview. The S&P 500 Index (SPY) (SPX) and the Dow Jones Industrial Average (DIA) (DOW) touched 2,300 levels and 20,000 levels, respectively, on Wednesday, January 25, 2017.

As the index touches new highs, various investors believe that the market is looking expensive. However, legendary investor Bill Miller said that the equity market is not terribly expensive. He said the market might look less expensive on an absolute basis relative to historical performance. However, in the past, we’ve seen that the equity bull market continued as long as the ten-year and 30-year Treasury yields (BND) moved to 6%. However, in the present scenario, the ten-year Treasury yield is at 2.5%.

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Bill Miller during the Delivering Alpha Conference

In the Delivering Alpha Conference, Miller said that if we go back 30 years to September 1987, a month before the market crash, the ten-year Treasury bond prices (TLT) were at 11x their return and equity at 15.6x. In September 2016, the ten-year Treasury bonds were at 63.8x their return and the equity at 18.5x, which shows how bond prices are overvalued compared to equities. Currently, the S&P 500 Index is trading at a price-to-earnings multiple of 20.6x.

Bill Miller also said that as long as the economic scenario is improving, earnings growth will improve and equities will be in the limelight. The earnings growth, dividend growth, and free cash flows are the major drivers for the equity market (IVV).

In the next part of this series, we’ll analyze Bill Miller’s view on the performance of various sectors.



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