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.

Core Valuation Models

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. Models are updated weekly, or as data becomes available.

Yield Curve Model: Strongly Overvalued

Updated October 31, 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 November 25, 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 70% 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 November 27, 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 33.25, which is 69% 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 November 27, 2020 » The S&P500 is currently trading 57% above its modern-era historical trendline, indicating that the market is Overvalued.

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

Other Models

As we find other interesting data, we periodically compile and publish other financial charts and models here. While these models (and our commentary on them) typically do make a claim in terms of market valuation, they are not used in our core determination of market valuation. These models are not regularly updated.

Federal Student Loans Outstanding Chart

September 2020

Federal Student Loan Crisis

Data exploring the exponential growth of unbankruptable federal student debt in the last twenty years.

S&P500 Mean Reversion Chart

August 2020

Fed Balance Sheet vs. S&P500

A look at the recent expansion of the Federal Reserve balance sheet, and its correlation with recent stock performance.