Current Market Valuation: Strongly Overvalued

We believe in fundamental analysis as the basis of any investment, and made CMV as a resource to quickly and easily track long-term indicators of market valuation. Current metrics suggest that the US stock market is Strongly Overvalued. You can view detail from our individual models below.

Note: While we hope that these models will be useful in putting this current market cycle into historical perspective, we do not make a claim that these will predict the market top or bottom. A global pandemic of this scale, combined with the economic depression that could follow, are unprecedented and markets may deviate materially from these historical trends.


Summary


We currently track four different models to evaluate whether the US stock market is accurately priced, relative to long-term historical patterns and fundamental indicators. Each model is illustrated below, with much more detail available by clicking into each.


Individual Models


Yield Curve Model: Strongly Overvalued

Updated June 30, 2020 » The spread between 10-Year and 3-Month US Government debt was recently negative, illustrating an inverted yield curve. Historically, this has been a very reliable indicator of a recession in the following ~12-24 months after inversion, and recessions correlate with lower stock market returns. The last time this happened was 2006, right before the financial crisis. Before that: 2000, before the .com bust. In the last 50 years this indicator hasn't been wrong.

More Info: Yield Curve »
Yield Curve Chart

Buffett Indicator Model: Strongly Overvalued

Updated July 30, 2020 » The Buffett Indicator (named after Warren Buffett, who claims this as a favorite macroeconomic indicator) is the ratio of total US stock market valuation to GDP. This is currently 62% higher than its historical average, indicating the market is currently Strongly Overvalued.

More Info: Buffett Indicator »
Buffett Indicator Chart

P/E Ratio Model: Overvalued

Updated July 31, 2020 » The P/E ratio is a fundamental measure of any security's valuation, indicating how many years of current profits it takes to recoup an investment. The aggregate S&P500 P/E (CAPE) ratio is 30.5, which is 55% above the modern-era market average of 19.6, putting the current P/E over 1 standard deviation above the average. This indicates that the market is Overvalued.

More Info: Price/Earnings »
P/E Ratio Chart

S&P500 Mean Regression Model: Overvalued

Updated July 31, 2020 » The S&P500 is currently trading 44% above its modern-era historical trendline, indicating that the market is Overvalued.

More Info: S&P Mean Regression »
S&P500 Mean Reversion Chart