Is the Market Still Overvalued?
Here is a summary of the four market valuation indicators we update on a monthly basis.
- The Crestmont Research P/E Ratio
- The cyclical P/E ratio using the trailing 10-year earnings as the divisor
- The Q Ratio, which is the total price of the market divided by its replacement cost
- The relationship of the S&P Composite price to a regression trendline
The Latest Look at the Total Return Roller Coaster
Here's an interesting set of charts that will especially resonate with those of us who follow economic and market cycles. Imagine that five years ago you invested $10,000 in the S&P 500. How much would it be worth today, with dividends reinvested but adjusted for inflation? The purchasing power of your investment has increased to $15,352 for an annualized real return of 8.60%.
World Markets Update: August 3, 2020
Seven of eight indexes on our world watch list posted losses through August 3, 2020. The top performer is our own S&P 500 with a gain of 1.98%. China's Shanghai is in second with a loss of 1.69% and in third is Tokyo's Nikkei 225 with a loss of 3.83%. Coming in last is London's FTSE 100 with a loss of 20.01%.
Regression to Trend: Another Look at Long-Term Market Performance
Quick take: At the end of July the inflation-adjusted S&P 500 index price was 123% above its long-term trend, up from 119% the previous month.
About the only certainty in the stock market is that, over the long haul, over performance turns into underperformance and vice versa. Is there a pattern to this movement? Let's apply some simple regression analysis to the question.