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S&P 500 Price-to-Sales Ratio and Stock Market Returns

July 21, 2022 • Posted in Fundamental Valuation

A subscriber suggested looking at the S&P 500 price-to-sales ratio (P/S) as an indicator for timing the U.S. stock market. To investigate, we relate P/S and change in P/S to S&P 500 Index (SP500) returns, as follows:

  1. Conduct lead-lag analyses for quarterly P/S versus quarterly SP500 returns, and for quarterly change in P/S versus SP500 returns.
  2. Calculate average next-quarter SP500 returns by range of quarterly values of P/S and quarterly changes in P/S.

Using quarterly S&P 500 P/S data since the end of December 2000 and quarterly closing SP500 levels since December 1999, both through June 2022, we find that: (more…)

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