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 »
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 »
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 »
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 »
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.
September 2020
Federal Student Loan Crisis
Data exploring the exponential growth of unbankruptable federal student debt in the last twenty years.
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.