S&P 500 Forecast: This Fundamental Metric Is Screaming “Buy”
What if the market isn’t actually expensive, but rather underestimated? As multiples tighten and sentiment becomes more cautious, an important underlying measure is showing signs of improvement: profits are rising even as prices fall. If past patterns prevail, then this gap could signal one of the most attractive entry points for the S&P 500 in recent years.
In the past, I’ve called this the “chart that beats the valuation bears,” and I really believe that. Under the hood of modern markets, a shift has been going on for over two decades. Average valuations, like forward price-to-earnings ratios, have been steadily rising. But what if that can be explained and justified? What if valuations just should be higher? I argue that profitability, specifically forward profit margins, trumps earnings premiums and justifies structurally higher P/E ratios over time. Cutting to the chase, here’s the chart showing how deep the correlation has been over the last two decades: