{"id":42605,"date":"2023-07-31T11:27:51","date_gmt":"2023-07-31T15:27:51","guid":{"rendered":"https:\/\/ifintechworld.com\/investing\/the-stock-markets-lofty-valuation-right-now-should-make-you-dizzy\/"},"modified":"2023-07-31T11:27:53","modified_gmt":"2023-07-31T15:27:53","slug":"the-stock-markets-lofty-valuation-right-now-should-make-you-dizzy","status":"publish","type":"post","link":"https:\/\/ifintechworld.com\/?p=42605","title":{"rendered":"The stock market\u2019s lofty valuation right now should make you dizzy"},"content":{"rendered":"
\n

The U.S. stock market\u2019s valuation is approaching the lofty levels seen at the bull market top in early 2022. That\u2019s the unmistakable message of my monthly review of eight valuation models that have superior track records forecasting the U.S. market\u2019s subsequent returns. <\/p>\n

Though the theoretical approaches represented by the eight are distinct, they nevertheless tell a similar story about the U.S. market right now.<\/p>\n

\n

This wide range of theoretical approaches is crucial, because it\u2019s possible to find fault with any of the indicators individually. Using price\/book and q-ratios, for example, suffesr from the inadequate GAAP accounting of intangible assets. Looking at the dividend yield doesn\u2019t reflect the growing preference of corporations to return cash to shareholders via share repurchases rather than dividends. And so on.<\/p>\n

To wriggle out from underneath the bearish message of all eight indicators, however, the bulls would have to show that each of those indicators is defective. While that\u2019s always possible, it\u2019s a much more difficult argument to make \u2014 and far less plausible.<\/p>\n

The chart below compares the S&P 500\u2019s
\n SPX,
\n +0.06%<\/bg-quote>
\n current valuation with what prevailed at the bull market\u2019s top in early January 2022. The columns in the chart report the percentage of past months in which valuations were lower, so higher columns indicate higher relative valuations. <\/p>\n

Regardless of whether the comparison period extends back to 2000, or 1970 or 1950, the message is the same: U.S. stocks currently are almost as overvalued as they were at the top of the bull market.<\/p>\n

<\/p>\n
<\/p>\n
<\/div>\n<\/figure><\/div>\n

That\u2019s discouraging, since bear markets are supposed to reduce valuations by enough that the next bull market rests on a more solid foundation \u2014 and so has further to run to the upside than the previous one. But this most recent bear market was different; we\u2019re not even back to where the bull market stood at its early-2022 top, and yet today\u2019s S&P 500 valuation is nearly as stretched.<\/p>\n

How valuation models stack up <\/strong><\/h2>\n

Perhaps the only solace the bulls can find among these valuation indicators is that they tell us little about the market\u2019s short-term direction. Valuation\u2019s predictive ability exists at a much longer horizon \u2014 five to 10 years, in fact. So it\u2019s entirely possible that stocks in coming months can continue rising despite market overvaluation. But if they do, the S&P 500 will be resting on an even flimsier foundation than it is already.<\/p>\n\n\n\n\n\n\n\n\n\n\n
\n \u00a0<\/strong><\/p>\n<\/td>\n\n Latest<\/strong><\/p>\n<\/td>\n\n Month ago<\/strong><\/p>\n<\/td>\n\n Beginning of year<\/strong><\/p>\n<\/td>\n\n Percentile since 2000 (100% most bearish)<\/strong><\/p>\n<\/td>\n\n Percentile since 1970 (100% most bearish)<\/strong><\/p>\n<\/td>\n\n Percentile since 1950 (100% most bearish)<\/strong><\/p>\n<\/td>\n<\/tr>\n
\n P\/E ratio\u00a0<\/p>\n<\/td>\n\n 25.69<\/p>\n<\/td>\n\n 24.95<\/p>\n<\/td>\n\n 22.23<\/p>\n<\/td>\n\n 76%<\/p>\n<\/td>\n\n 84%<\/p>\n<\/td>\n\n 89%<\/p>\n<\/td>\n<\/tr>\n
\n CAPE ratio<\/p>\n<\/td>\n\n 31.69<\/p>\n<\/td>\n\n 30.79<\/p>\n<\/td>\n\n 28.32<\/p>\n<\/td>\n\n 88%<\/p>\n<\/td>\n\n 88%<\/p>\n<\/td>\n\n 92%<\/p>\n<\/td>\n<\/tr>\n
\n P\/Dividend ratio<\/p>\n<\/td>\n\n 1.50%<\/p>\n<\/td>\n\n 1.53%<\/p>\n<\/td>\n\n 1.74%<\/p>\n<\/td>\n\n 88%<\/p>\n<\/td>\n\n 90%<\/p>\n<\/td>\n\n 93%<\/p>\n<\/td>\n<\/tr>\n
\n P\/Sales ratio<\/p>\n<\/td>\n\n 2.56<\/p>\n<\/td>\n\n 2.49<\/p>\n<\/td>\n\n 2.19<\/p>\n<\/td>\n\n 92%<\/p>\n<\/td>\n\n 97%<\/p>\n<\/td>\n\n 97%<\/p>\n<\/td>\n<\/tr>\n
\n P\/Book ratio<\/p>\n<\/td>\n\n 4.38<\/p>\n<\/td>\n\n 4.26<\/p>\n<\/td>\n\n 3.75<\/p>\n<\/td>\n\n 96%<\/p>\n<\/td>\n\n 94%<\/p>\n<\/td>\n\n 96%<\/p>\n<\/td>\n<\/tr>\n
\n Q ratio<\/p>\n<\/td>\n\n 1.89<\/p>\n<\/td>\n\n 1.83<\/p>\n<\/td>\n\n 1.58<\/p>\n<\/td>\n\n 97%<\/p>\n<\/td>\n\n 99%<\/p>\n<\/td>\n\n 99%<\/p>\n<\/td>\n<\/tr>\n
\n Buffett ratio (Market cap\/GDP )<\/p>\n<\/td>\n\n 1.74<\/p>\n<\/td>\n\n 1.67<\/p>\n<\/td>\n\n 1.46<\/p>\n<\/td>\n\n 93%<\/p>\n<\/td>\n\n 97%<\/p>\n<\/td>\n\n 98%<\/p>\n<\/td>\n<\/tr>\n
\n Average household equity allocation<\/p>\n<\/td>\n\n 46.2%<\/p>\n<\/td>\n\n 44.9%<\/p>\n<\/td>\n\n 44.9%<\/p>\n<\/td>\n\n 92%<\/p>\n<\/td>\n\n 92%<\/p>\n<\/td>\n\n 94%<\/p>\n<\/td>\n<\/tr>\n<\/table>\n

Mark Hulbert is a regular contributor to MarketWatch. His Hulbert Ratings tracks investment newsletters that pay a flat fee to be audited. He can be reached at <\/em>mark@hulbertratings.com<\/em><\/p>\n

Also read:<\/strong> Stocks are on a seemingly unstoppable hot streak, but this bond-market \u2018tipping point\u2019 could see it end in a hurry<\/p>\n

Plus:<\/strong> How much do you believe in this market? Your gut feeling matters more than the stocks and bonds you like.<\/p>\n<\/p><\/div>\n<\/div>\n

Read the full article here<\/a><\/p>\n","protected":false},"excerpt":{"rendered":"

The U.S. stock market\u2019s valuation is approaching the lofty levels seen at the bull market top in early 2022. That\u2019s the unmistakable message of my monthly review of eight valuation models that have superior track records forecasting the U.S. market\u2019s subsequent returns. Though the theoretical approaches represented by the eight are distinct, they nevertheless tell […]<\/p>\n","protected":false},"author":1,"featured_media":42606,"comment_status":"open","ping_status":"open","sticky":false,"template":"","format":"video","meta":{"footnotes":""},"categories":[239],"tags":[83],"class_list":["post-42605","post","type-post","status-publish","format-video","has-post-thumbnail","hentry","category-investing","tag-featured","post_format-post-format-video"],"yoast_head":"\nThe stock market\u2019s lofty valuation right now should make you dizzy | iFintechWorld<\/title>\n<meta name=\"description\" content=\"The U.S. stock market\u2019s valuation is approaching the lofty levels seen at the bull market top in early 2022. 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