Cheap Stocks And Investor Demand Drive P/E To 25 Year Low

The S&P 500 (INDEXSP:.INX)’s rally this year has been driven by multiple expansion, and investors have responded by buying cheap stocks that will benefit from market trends without necessarily having the best fundamentals. The result is low dispersion of valuations, a market that will need strong earnings to keep growing, and a preference for growth stocks over the next year, according to Goldman Sachs analyst David Kostin.

Cheap stocks have squeezed the distribution of stock valuation

“Investor demand for “cheap” stocks has squeezed the distribution of S&P 500 (INDEXSP:.INX) stock valuations, leaving the dispersion of P/E ratios at its lowest level in the past 25 years as value outperformed,” writes Kostin. “The relative performance of growth vs....