A sideways stock market has some advantage : it improves valuation. If the S&P is pretty much sitting where it was 12 years ago, its valuation ratios have improved significantly. From a high of 5.27 for the price to book and 2.42 for the price to sales for example, they decreased to 2.17 and 1.23 respectively :
This is the real “bear-market”. Even during the 2003-2007 bull market, most ratios did not really expand. They rebounded from the “low” of 2002 and then range-bounded until late 2007. As a consequence, valuation did improved.
So value is in the process of coming back. We might not have seen the low, but we came a long way.
Also, as a side note, the ratio of book value to sales has steadily been increasing, from a low below 0.37 to now a high above 0.57. Which means companies’ book value has been increasing faster than sales. Margins have been trending higher in the last few year, which means higher earnings were extracted from the same amount of sales. As book value comes from retained earnings, we can assume that a large portion of this effect comes from those improving margins. Now, except from a short term bounce due to lay-off and cost cutting, I am not sure this trend will continue.
Posted by Gael 
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