Current Market Valuation

Aggregate index score shown is the equally weighted average of our six core valuation models, shown below. Each model in the index uses historical data to determine a baseline. Current model values are expressed in terms of the current data's number of standard deviations above or below that baseline trend.

Updated February 3, 2023

CMV Aggregate Index Score - Speedometer Chart
CMV Aggregate Index Score - Timeline Chart

Models are updated at end of each week, or as data becomes available. For much more detail on each model, click into their respective detail pages, below.

Recession Indicator Models

The Yield Curve Model: Strongly Overvalued

Updated February 3, 2023

Summary: When short term (3-month) Treasury yields are higher than long term (10-year) yields, it is a bearish signal that is almost always followed by economic recession.

Currently: The 10-year Treasury rate is 3.53% and the 3-month is 4.70%, for a spread of -1.17%. Since 1950 the historic average spread has been 1.51%. The current spread is 2.2 standard deviations above the historic trend. We consider this Strongly Overvalued.

Chart: US Treasury Yields, 10-Year minus 3-Month Yield Spread
Chart: US Treasury Yields, 10-Year minus 3-Month Yield Spread

The State Coincidence Index Model: Overvalued

Updated December 1, 2022

Summary: A State Coincidence Index (SCI) is an aggregate measure of individual state economic health. This model charts the number of states with month-over-month declines in their SCI. On average, if more than 25 states are in decline, the US overall is entering a recession.

Currently: As of December 1, 2022 there are 22 states with a decreasing SCI, which we asses as a market rating of Overvalued.

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Market Valuation Models

The Buffett Indicator Model: Overvalued

Updated February 3, 2023

Summary: The Buffett Indicator is the ratio of the total value of the US stock market versus the most current measure of total GDP.

Currently: The total US stock market is worth $44.5T, the current GDP estimate is $26.2T, for a Buffett Indicator measure of 170%. This is 1.0 standard deviations above the historic trend of 129%. We consider this Overvalued.

Chart: US Market Value to GDP Ratio, % Over/Under Historic Trend
Chart: US Market Value to GDP Ratio, % Over/Under Historic Trend

The Price/Earnings Model: Overvalued

Updated February 3, 2023

Summary: The PE Ratio Model tracks the ratio of the total price of the US stock market versus the total average earnings of the market over the prior 10 years (aka the Cyclicly Adjusted PE or CAPE).

Currently: The current CAPE ratio is 29.7. This is 47% above the long-term historic trend CAPE of 20.2, or approximately 1.2 standard deviations above trend. We consider this Overvalued.

Chart: US Cyclicly Adjusted Price Earnings (CAPE) vs Historic Trend
Chart: US Cyclicly Adjusted Price Earnings (CAPE) vs Historic Trend

The Interest Rate Model: Fairly Valued

Updated February 3, 2023

Summary: Low interest rates should generally drive higher equity prices. This model examines the relative S&P500 position given the relative level of interest rates.

Currently: The current S&P500 ($4,136) is currently 1.2 standard deviations above its historical trend. The 10-year US Treasury interest rate is 3.53, about 0.8 standard deviations below trend. Netted together, this composite model suggests the total market is Fairly Valued.

Chart: Composite of Relative S&P500 vs Relative 10Y Treasury Bond Rates
Chart: Composite of Relative S&P500 vs Relative 10Y Treasury Bond Rates

The Margin Debt Model: Undervalued

Updated December 31, 2022

Summary: Margin debt is money investors borrow to invest in stocks. High margin indicates bullish investors, and tends to lead stock market corrections, particularly after margin rates begin falling from a peak. This model looks at changes in margin as a percent of total stock market value.

Currently: As of December 31, 2022, total US margin debt was $607B, a decrease of $362B year-over-year. This represents a yearly decrease of 0.93% of the value of the total US stock market. This is about 1.4 standard deviations below the historical trend, indicating the market is Undervalued.

Chart: 12-month Change in Real Margin Debt as a % of Total Market Value
Chart: 12-month Change in Real Margin Debt as a % of Total Market Value

S&P500 Mean Reversion Model: Overvalued

Updated February 3, 2023

Summary: An extremely straightforward model stipulating that at some point, eventually, the S&P500 will tend to return towards its historic trend line.

Currently: The S&P500 is at $4,136, or approximately 42% above its exponential historic trend line. We consider this Overvalued.

Chart: S&P500 % From Exponential Trend Line
Chart: S&P500 % From Exponential Trend Line

Other Posts

2023 Predictions

Posted December 29, 2022

2023 Predictions

Economic and market predictions for 2023. General guesses and lukewarm takes, not trading advice.

Market Performance During Recessions

Posted November 04, 2022

Market Performance During Recessions

In the 11 recessions since 1950, the S&P500 drops an average 20% during the recession, and then recovers almost 40% in the following 18 months.

How the Fed Changes Interest Rates

Posted October 28, 2022

How the Fed Changes Interest Rates

A quick breakdown on how the Fed actually implements interest rate changes, post-2008.

The Data on Day Trading

Posted November 16, 2022

The Data on Day Trading

A collection of published, peer-reviewed studies on the performance of retail day traders.

Ending Payment for Order Flow

Posted June 01, 2022

Ending Payment for Order Flow

The SEC wants to end Payment For Order Flow (PFOF). That is great news as PFOF incentivizes brokers to harm their retail traders.

The Impact of Narcissistic CEOs

Posted May 15, 2022

The Impact of Narcissistic CEOs

Narcissistic CEOs of public companies are shown empirically to be more likely to make adjustments to their firm's GAAP earnings. These adjustments are larger in scale, and lower in quality than adjustments made by non-narcisstic CEOs.

The Case for Transitory Inflation

Posted March 16, 2022

The Case for Transitory Inflation

As inflation continues upward, a look back at what caused it and the Fed's response going forward.

Inflation vs Interest Rates

Posted November 12, 2021

Inflation vs Interest Rates

Inflation is skyrocketing - how long can interest rates stay so low?

S&P500 P/E Ratio vs Interest Rates

Posted November 06, 2021

S&P500 P/E Ratio vs Interest Rates

The stock market may be low given strong corporate earnings versus super-low interest rates.

On The Radar

Timely links to external news and articles, usually valuation related, with occasional commentary. Most recent items shown below - for more, check the Radar page.

Wednesday, 18 January 2023 Wall Street Rapper Charged in Crypto Heist Gets New Tech Job

The former tech entrepreneur, “Razzlekhan” rapper and accused cryptocurrency thief Heather Morgan has a new job.

Morgan, who dubbed herself on social media and in music videos as “The Crocodile of Wall Street,” was hired by an unspecified technology company even though she’s under 24-hour house arrest, according to a court filing. She and her husband are accused of trying to launder $4.5 billion of Bitcoin stolen from the Bitfinex currency exchange.

Only 18 days in and already found the headline of the year.

Tuesday, 17 January 2023 China’s Population Falls, Heralding a Demographic Crisis

HONG KONG — The world’s most populous country has reached a pivotal moment: China’s population has begun to shrink, after a steady, yearslong decline in its birthrate that experts say is irreversible.

The government said on Tuesday that 9.56 million people were born in China last year, while 10.41 million people died.

A major turning point.

Extremely Hardcore

No breaking news here, but an excoriating summary of Elon's last 12 months, and his absolutly bungled Twitter buyout.

Thursday, 12 January 2023 Microsoft’s Nadella Takes Fresh Aim at Google With OpenAI Talks

The company is in discussions to invest as much as $10 billion in OpenAI, the creator of viral AI bot ChatGPT, according to people familiar with its plans. The proposal under consideration calls for Microsoft to inject the cash over several years, though final terms may change, the people said.

Very difficult to speculate on whether or not these particular economics make sense, but Microsoft has been an incredibly canny navigator of tech disruption since its inception.

US Inflation Cools Again, Giving Fed Room to Downshift on Rates

US inflation continued to slow in December, adding to evidence price pressures have peaked and putting the Federal Reserve on track to again slow the pace of interest-rate hikes.

The overall consumer price index fell 0.1% from the prior month, with cheaper energy costs fueling the first decline in 2 1/2 years, according to a Labor Department report Thursday. The measure was up 6.5% from a year earlier, the lowest since October 2021.

Tuesday, 3 January 2023 2023 Will Be the Year of the Electric SUV

The ironic thing is no one really has any idea just how many drivers want to go electric, but safe to say it’s a lot. Surveys regularly peg the EV-curious between 25% and 50% and that share will only increase as products proliferate. For green driving, as the saying goes, it’s the best of times and…well…it could be better.

Continuing to frame EVs as some kind of "green" alternative is crazy. Extremely few people are in a position to pay an extra $10k+ on something just because it's a more eco-friendly choice. The real story behind EVs is that they're unbelievably better cars. Anyone who has driven one will tell you that it is a qualitatively different and better experience than a regular gasoline car. The best metaphor I have for it is like when high definition TVs first came out - once you saw that with your own eyes it was immediately obvious that it was the future of the entire industry.

US Recession ‘Pretty Likely,’ Ex-New York Fed Chief Dudley Says

“A recession is pretty likely just because of what the Fed has to do,” he said in an interview on Bloomberg Surveillance Tuesday. “But what’s different this time I think is that if we have a recession, it’s going to be a Fed-induced recession and the Fed can end the recession by subsequently easing monetary policy.”

Checks out.

Thursday, 29 December 2022 Best Business Books of 2022

A selection of the best business books of the year, a few tips from readers and the titles DealBook looks forward to reading in 2023.

Wall Street’s Top Stars Got Blindsided by 2022 Market Collapse

The two men — high-profile personas at big-name firms — are the public faces of what can only be described as the blindsiding of Wall Street. With few exceptions, the best and brightest in stock and bond markets failed to appreciate how the inflation outbreak would upend the investing world in 2022. They failed to anticipate how the Fed would react — the rate increases came at a torrid, not measured, pace — and failed to foresee how that, in turn, would trigger the worst simultaneous rout in stocks and bonds since at least the 1970s.

No one can predict what the stock market will do next.

Milan Reports 50% of Passengers on China Flights Have Covid

Italian health authorities will begin testing all arrivals from China for Covid after almost half of the passengers on two flights to Milan were found to have the virus.

They are also sequencing the Milan tests to see if there are new variants, the Health Ministry said in a statement.

Not a headline you want to see three years into this thing...

Thursday, 22 December 2022 Forget Stock Predictions for Next Year. Focus on the Next Decade.

These attempts at clairvoyance are stymied by a fundamental problem: It’s simply impossible to forecast the path of the markets six months or a year ahead with accuracy and consistency, as many academic studies have shown. That the financial services industry continues to label these unreliable numbers as forecasts is a triumph of breathtaking chutzpah — a technical term for shameless audacity.

The best investing advice I've seen all year.

Bankman-Fried Associates Flip as FTX Founder Arrives in NYC

FTX co-founder Sam Bankman-Fried landed in the US late Wednesday to face a range of criminal charges just as two of his long-time associates said they were cooperating with prosecutors.

The revelation that Caroline Ellison and Gary Wang had pleaded guilty to fraud and were working with federal officials probing the collapse of the crypto exchange is an ominous sign for Bankman-Fried. The 30-year-old is facing an eight-count indictment in New York.

This guy is done for.

Renters Want to Buy Their First Homes — They Just Can’t

While 95% of millennials who rent want to own a home, they’re doubtful they’ll be able to pull it off any time soon.

First there was the pandemic housing frenzy, with bidding wars and cash offers dominating an under-supplied market that was too hot for many first-time buyers to crack, even with historically low mortgage rates. Then came interest rate hikes, which have driven up borrowing costs. And while the Fed has managed to cool housing demand, the supply of available properties is still low and monthly mortgage payments have spiked out of reach for many potential buyers.

Left unstated in this article is that this result is the explicit and purposeful goal of current fed policy. Rates go up => people buy less things. The only interesting facet here is how such policy affects different groups disproportionately:

Across age demographics, 88% percent of people who bought a primary residence between July 2021 and June 2022 were White, according to the National Association of Realtors. Among first-time buyers during that period, 82% were White, the highest share in at least 20 years.

Monday, 19 December 2022 Get Yourself Some “No Men”

What is the problem with “Yes Men?” They tell their masters what they want to hear, fail to challenge their worst ideas, and generally encourage their patron’s own bad instincts. As we have seen in 2022, “Yes Men” are disastrous for titans of industry, billionaires, even monarchs.

Some of 2022’s most disastrous situations occurred because these people failed to have anyone around to challenge or push them to come up with better solutions. They needed to have some “No Men” around.

Incredibly good advice, albeit difficult to follow. Always have someone that can comfortably and safely disagree with you.

Tuesday, 15 November 2022 FTX’s Balance Sheet Was Bad

And yet bad as all of this is, it can’t prepare you for the balance sheet itself, published by FT Alphaville, which is less a balance sheet and more a list of some tickers interspersed with hasty apologies. If you blithely add up the “liquid,” “less liquid” and “illiquid” assets, at their “deliverable” value as of Thursday, and subtract the liabilities, you do get a positive net equity of about $700 million. (Roughly $9.6 billion of assets versus $8.9 billion of liabilities.) But then there is the “Hidden, poorly internally labeled ‘fiat@’ account,” with a balance of negative $8 billion. I don’t actually think that you’re supposed to subtract that number from net equity — though I do not know how this balance sheet is supposed to work! — but it doesn’t matter. If you try to calculate the equity of a balance sheet with an entry for HIDDEN POORLY INTERNALLY LABELED ACCOUNT, Microsoft Clippy will appear before you in the flesh, bloodshot and staggering, with a knife in his little paper-clip hand, saying “just what do you think you’re doing Dave?” You cannot apply ordinary arithmetic to numbers in a cell labeled “HIDDEN POORLY INTERNALLY LABELED ACCOUNT.” The result of adding or subtracting those numbers with ordinary numbers is not a number; it is prison.

What Levine is doing is special. Give this man a Pulitzer.

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