TL;DR:
If you’re interested in a FASTgraphs view on the stock market – with the S&P 500 ocular / eyepiece mounted, there’s some eyecandy below.
If you’re not interested in making outsized and almost certain above market returns … 
Otherwise do yourself a favor and
Just Skip This Post.
Introduction
This post is inspired by someone who DM’d me, asking for how I use FASTgraphs. While my answer was that there are already a bunch of tutorials for FASTgraphs, I thought maybe I could give a limited intro using about 500 stocks.
While FASTgraphs is really designed to look at companies, it does include excactly one index: the S&P 500 (via the SPY ETF). Looking at the SPY is not best suited to demonstrate all the features of FASTgraphs, but perhaps some of you will like looking at “the market” through this lens.*
* One can always analyze the constituents of an index, or maybe the top 10 or 20 which will often cover the majority of a given index, but that’s actual work, even in FASTgraphs.
Basic Views
The Very Basic Earnings View
The FASTgraphs founder Chuck Carnevale likes to first look at earnings over time first. This is the picture for the S&P 500 for the past 20 years:
Take aways:
- earning grew close to 8% over this period of time
- minor fluctuations in earnings overall
- the so-called “fair value ratio” – aka the multiple for earnings in a given year – is 15, meaning that the “fair price” is deemed to be 15 times the earnings in that year.*
* The so-called fair earnings multiple line is with regard to expected growth. For fast growing companies, this equals to Peter Lynch’s PEG, aka P/E = G, for “normal” growing companies this results at 15 x P/E, and for slow growing companies the “fair” multiple is the growth rate of the company.
E.g.:
- fast growing company Nvidia commands a growth rate of 36.79, FASTgraphs arrives at a “fair multiple” of 30 x P/E
- run of the mill growing company Johnson&Johnson grows at 6.46%, FASTgraphs arrives at a fair multiple of 15 x P/E
- for no longer growing company like Walgreens Boots Alliance, FASTgraphs arrives at a fair multiple of 9.71 x P/E
The exact “fair multiples” calculated at FASTgraphs are guided according to the above, but aren’t publicly sourced. IMO they seem adequate almost always.
So far, so good: the “SPY” seems like a good “company” to buy given earnings tend to grow nicely and steadily, with occasional hiccups, but those seem temporary.
Let’s add price and a couple of other metrics:
Earnings With Additional Metrics
Let’s now add price:
Looks like price is a little detached from that “fair” price multiple.
But this is short sighted, probably?
Let’s add a few more graphs for potential additional insights:
The white line: proportion of the earnings made paid out as dividends. Currently about 32%. Historically not completely out of proportion, but somewhat low (see a later chart below).
The blue line: historical average – over the time frame chosen in the tool – that the price has averaged around given the time frame.
This is essentially the multiple of what the market has been willing to award for this “stock”, at least historically. In short, the market is willing to pay a “premium” over the so-called “fair multiple” (based on the earnings growth), whether it’s deserved or not.
The full picture adds the dividend yield, an additional measure of how “valued” the market might be given historic measures:
Given this slicing and dicing, the dividend yield hasn’t been as low as today in a while (it is at 1.17% now, it was at 1.4% at the end of 2023, it was as low as 1.2% a the end of 2022).
Changing The Time Frame
All these metrics were fun to look at, but the averaged ones were averaged over the course of the chosen time frame (previously: “max”), i.e. looking back over 20 years of data originally supplied by FactSet.
Let’s now switch to looking at just 2015/16 (when Trump was last elected) to about now’ish.
The market valued the SPY below its “normal” multiple (of then 20.5x) at the time, and expanded that multiple eventually.
Looking at the market today we are at a close to 26 x P/E.
If the market continued to value itself at the historical (averaged since 2016) multiple of about 20.5, you’d look at an annualized return of close to 4%:
If the market went back to “fair” valuation of 15 x P/E, then you’d look at negative returns:
Summary
In my personal opinion, neither scenario will play out.
Given my investment approch, I also don’t really care that much.
In your personal investment approach, may the market god be with you!
happy for Cortana (and us all)!
)