Musings on Markets: Data Update 2 for 2024 - Stock Valuation and Expectations Game
Damodaran analyzes the S&P 500's 24.23% return in 2023 driven by beaten expectations of a soft landing, and concludes that equities are currently overvalued by ~9.2% at January 2024 levels based on intrinsic valuation using consensus earnings, cash payout ratios, and a 3.88% risk-free rate. The article emphasizes that equity returns are driven by how actual results compare to expectations rather than fundamentals alone, and provides sensitivity analysis on earnings surprises and interest rate scenarios.
Metrics in this report
74.8%percent
S&P 500 earnings returned to shareholders as percentage of net earnings in 2023
4.60%percent
Expected return above risk-free rate as of January 1, 2024
8.48%percent
US equity expected annual return as of January 1, 2024 based on implied pricing
3.88%percent
US Treasury bond rate used as discount rate in January 2024 valuation
26.06%percent
2023 full-year return including 24.23% price appreciation and 1.83% dividend yield
24th of 95rank
Historical ranking of 2023 return from 1928 baseline
3670-5200index_points
decile range
First to ninth decile range of fair values using Monte Carlo simulation with embedded uncertainties
58%percent
US equity sector performance in 2023