Always consider hidden risks
US Stock Market History Valuations
September 10 2017 ( From TradingView , FRED)
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Let s take a quick look at Macro US Stock Market History Valuations using
as our main Index the Wilshire 5000. Why that Index, because it does include
all stocks traded actively in the US and is a better proxy than the SP500 Index.
It is interesting to look at the Buffet Indicator: The Berkshire Hathaway Inc.
(NYSE:BRK.A)(NYSE:BRK.B) CEO measures the total market valuation as the ratio
of the Wilshire 5000 index to U.S. GDP. Taking a quick look at the first chart below, we can see that based on history, the US Stock Market is quite expensive. We are not getting close to the Q1 2000 peak but reaching rich valuation based on history.
The second way to look at the market expensiveness is by taking a look at how long does it take for an employee to buy the Wilshire 5000 Index. So by calculating the Weekly Ratio of the Index over the US Average Weekly Earnings of Production and Nonsupervisory Employees, it will give us how long does it take to buy the Index. Well, looking at the second chart below, it is obvious that we reached this summer the highest ever!
The third way to look at it is by following the Net Worth of US Household as a percentage of Disposable Personal Income (See Third Chart Below). We reached the highest ever level in Q1 2017. I did add the Wilshire 5000 on the right axis to show the correlation between those two series.
And finally looking at the valuation approach of the Stock to Bond Ratio. In the fourth chart below, we plot the Weekly Ratio of the SP500 Index (SPY ETF) over the US Treasury Bond 20 Year (TLT ETF) (Top Panel). I added orange vertical lines for each previous peak since 2005 to show the trend in the following months of the SPY ETF ( Bottom Panel). Based on historical valuation, we are quite rich compare to that chart.
Quite interesting to note that according to those Macro Valuation Datas, they all point into the same conclusion. As the most hated bull market in history continue its long stretch, it remains a very atypical market as momentum seems more important that value investing. As geo-political risks is on the rise, market behavior is still on the complacency side...As the retail investor are chasing aggressively that rally into more Big Cap technology stocks, the market becomes more vulnerable when/IF we will have a correction.What have changed since the past year though (as mentioned by Nassim Taleb) is that Central Banks have finally started to reverse course by retrieving liquidity and hiking rates. So it become clear to me that the tail risk that investors face right now is that easy money is behind us...
US Stock Market History Valuations $SPY, $SPX, USDX #Trading #dxy #usdollar #SP500
Weekly Ratio of (Top Panel)
SP500 Index (SPY ETF)
US Treasury 20 Year (TLY ETF)
SP500 Index (Bottom Panel)
Quarterly Ratio of
US Gross Domestic Product
Weekly Ratio of
US Average Weekly Earnings of Production and Nonsupervisory Employees: Total Private
US Household as a percentage of Disposable Personal Income (Left Axis-Blue)
Wilshre 5000 Index (Right Axis-red)