Episode summary
Frothy Valuations and Fancy-Pants ETFs | Barron's Streetwise
Barron's Streetwise
· · Hosts: Jack Bary, Andrew Bary
Summary
The episode centers on whether today’s stock market valuations are permanently higher than history would suggest. The host says the S&P 500 around 25 times earnings looks expensive versus longer-run averages near 15 to 16, but he argues the right benchmark is uncertain because valuation data depend on the time period and even on how earnings are defined. He allows that a world with abundant savings and more effective central banks could justify a higher “normal,” while warning that the familiar line “this time it’s different” has often preceded trouble.
He also recommends practical responses rather than certainty: stay invested, rebalance toward cheaper exposures, keep bonds and cash reserves, and consider dividend income. On ETFs, he sharply distinguishes broad low-cost exposure like VTI from sector bets like XLE and niche products like MAGY, which he calls an expensive covered-call strategy that sacrifices upside for income.
Later, he cautions that leverage can amplify both gains and losses, worsen downturns through forced margin calls, and create an interest-cost hurdle. He also defends dividends as a sensible way for mature companies with fewer growth opportunities to return cash to shareholders.
Key takeaways
- The host says the S&P 500 near 25 times earnings looks rich versus long-run averages around 15 to 16, but no single “normal” valuation is certain.
- He argues that a structurally higher valuation could be possible because of abundant savings and more capable central banks, but he remains cautious about “this time it’s different.”
- He prefers broad, low-cost stock exposure like VTI over sector bets like XLE or niche covered-call ETFs like MAGY.
- The host warns that leverage can magnify drawdowns, trigger forced margin selling, and add an interest-cost hurdle.
- He says dividends still matter because companies with fewer growth uses for cash should return more of it to shareholders.
Notable quotes
“There's basically a glut of savings chasing relatively scarce financial assets”
“This time it's different. Eight centuries of financial folly”
“I don't really think it's for anyone in general”
“Over time, the stock market tends to go up”
“Companies with fewer opportunities out there to invest for growth, they should be paying out a lot for shareholders”
How the episode opens
Alexis is making her Exodus. Exodus. You're leaving. — Exodus. Yes. — Exit — Is a cross between exit and Exodus. You're — I like it. — You're leaving us. This podcast was it something I said I'm difficult to work with. Right. Tell the people.
Well, you know, Jack, it's not you. It really is me.
So, here's what we're going to do. We'll answer some listener questions this episode. We're working on an episode with some reporting I recently did on the road.
And we will be joined, as I understand it, by I guess I won't say yet, but a familiar voice from the past of this podcast for at least a few weeks or so. Let's get to some questioning and some answering. And yes, I'm leaving the G's off the end of both those words and putting apostrophes just to keep it folksy.
Who do we have?
Texas really changed you, Jack. First up, we have Brad from Michigan.
Hi, Jack. Hi, Alexis. Brad from Michigan here.
First time voice memoer, longtime listener. Jack has mentioned in a lot of episodes that the market seems frothy over the last few years and price to earnings ratios aren't quite matching what the history of the S&P 500 or other US indexes have shown. My question is in 2021 a lot of money was created and this money all needed somewhere to go.
Is it possible that with the large amount of money that was created into the US market that there's a new normal a new baseline for price to earnings?
Thank you Brad. It's an excellent question. If we say that the S&P 500 trades at, let's call it 25 times earnings, a little more than that if we're looking at trailing earnings, a little less if we're looking at forward earnings.
From the episode’s captions: roughly the first two minutes, lightly cleaned. Keep watching on YouTube →
Topics
- stock valuations
- leveraged returns
- dividends contribution
- etf review
Watch the episode
Watch “Frothy Valuations and Fancy-Pants ETFs | Barron's Streetwise” on YouTube
Summary, takeaways and quote selection by Octagon. Quotes are short excerpts; the full conversation is in the episode.
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