2024-07-23 16:08:31 ET
Summary
- Since my previous writing, SPY has become more attractively valued with an unchanged CAPE ratio but lower real interest rates.
- More importantly, the probability of interest rate cuts in 2024 has dramatically increased.
- Meanwhile, the Q2 earnings forecast points to double-digit annual EPS growth from the underlying companies.
- These factors combined have substantially improved SPY's return potential for 2024.
SPY ETF has become more attractively valued
I last analyzed the SPDR S&P 500 ETF Trust ( SPY ) more than a month ago. As you can see from the screenshot below, the article downgraded SPY to a sell rating due to overvaluation concerns . More specifically, I explained that:
SPY is very expensive by usual valuation metrics such as P/E, dividend yield, and PEG ratio. Yet, the truly alarming sign comes when its valuation is benchmarked by risk-free rates. With the excess CAPE Yield ("ECY") hovering at a historical low (only about 1.2% currently), history suggests extremely unfavorable excess return potential over treasury bonds.
Read the full article on Seeking Alpha
For further details see:
SPY: Q2 Earnings And Rate Cut Probability Improved Its Return Outlook