Market Cap to GDP: August Buffett Valuation Indicator
With the Q2 GDP Second Estimate and the August close data, we now have an updated look at the popular "Buffett Indicator" -- the ratio of corporate equities to GDP. The current reading is 214.2%, up from 204.7% the previous quarter.
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 $20,758 for an annualized real return of 14.5%.
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
Regression to Trend: Another Look at Long-Term Market Performance
Quick take: At the end of August the inflation-adjusted S&P 500 index price was 180% above its long-term trend, up from 170% above 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.