Standard & Poors: low on growth, high on value

There's a fascinating quick-and-dirty piece of anlaysis up over at Ticker Sense, illustrating just how undervalued the U.S. equity market is right now:

... of the seven recoveries since 1962, corporate profits have risen at a faster pace than any other recovery since 1962. Clearly investors should be bullish, right? ... investors must have gotten up on the wrong side of the bed at the start of this recovery, and have been in a sour mood ever since. Since November 2001, the P/E ratio on the S&P 500 has not only grown at a slower pace than any other expansion, but it has actually declined!

Illustrated with charts, and well worth checking out. One possible explanation for the undervaluation of such apparently profit-rich markets right now is that the money is geared towards growth, and despite the fact that the S&P seems to be recovering well, the general perception is that there's not a lot of potential growth when compared alongside other, more exotic markets like China. Bear in mind too that in the 1970's many of the companies listed on the S&P 500 were actually growth companies back then, and by implication merited higher P/E ratios.

Taking into account the fundamental changes in the dynamics of the S&P then, the key question is probably not when S&P stocks will pick up but where all those excess recovery profits are re-invested: it's all about capitalising off innovation as a value company.