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 September 30, 2022

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.

Core Valuation Models

The Yield Curve Model: Fairly Valued

Updated September 29, 2022

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 3.76% and the 3-month is 3.26%, for a spread of 0.50%. Since 1950 the historic average spread has been 1.51%. The current spread is 0.8 standard deviations above the historic trend. We consider this Fairly Valued.

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

The Buffett Indicator Model: Fairly Valued

Updated September 30, 2022

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 $38.6T, the current GDP estimate is $25.4T, for a Buffett Indicator measure of 151%. This is 0.6 standard deviations above the historic trend of 128%. We consider this Fairly Valued.

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: Fairly Valued

Updated September 30, 2022

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 26.3. This is 31% above the long-term historic trend CAPE of 20.1, or approximately 0.8 standard deviations above trend. We consider this Fairly Valued.

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 September 30, 2022

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 ($3,586) is currently 0.6 standard deviations above its historical trend. The 10-year US Treasury interest rate is 3.76, about 0.7 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 August 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 August 31, 2022, total US margin debt was $688B, a decrease of $299B year-over-year. This represents a yearly decrease of 0.74% of the value of the total US stock market. This is about 1.1 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: Fairly Valued

Updated September 30, 2022

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 $3,586, or approximately 20% above its exponential historic trend line. We consider this Fairly Valued.

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

Other Posts

Periodic posts - not necessarily related to market valuation, and not tied to our core valuation rating.

The Data on Day Trading

Posted July 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 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 2022

The Impact of Narcissistic CEOs

White Paper Review: 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 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 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 2021

S&P500 P/E Ratio vs. Interest Rates

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

Fed Balance Sheet vs. S&P500

Posted July 2021

Fed Balance Sheet vs. S&P500

Fed spending (quantitative easing) has been rising. Does this prop up stocks? Raise inflation?

Junk Bonds

Posted March 2021

Junk Bonds

Junk bond rates are super low, particularly when compared to Treasuries.

Federal Student Loan Crisis

Posted September 2020

Federal Student Loan Crisis

Student loan debt is absolutely out of control.

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.

Friday, 30 September 2022 The Democratic Stock Trading Ban

After months of moral panic, House Democrats this week released a bill to ban federal officials from owning individual stocks, but its sheer breadth is a reason for second thoughts. The evidence is thin that this addresses any real problem, while it will deter successful people from seeking or accepting public office.

The bill would forbid federal officials from holding individual investments unless they’re in a qualified blind trust. There are some exemptions, such as for “a diversified mutual fund” or “a diversified exchange-traded fund,” as well as for “an interest in a small business concern or family-owned business that does not present a conflict of interest.” But no trading shares in companies famous or obscure.

These stringent terms would apply to Members of Congress, their spouses and dependent children, and some senior aides on Capitol Hill. They’d also cover the President and Vice President, plus any Senate-confirmed “political appointee,” which is a category that potentially reaches something like 1,200 roles.

If voters don’t trust their Senator or Representative not to profit from their office, the answer is to throw the bum out.

This is absolutly unhinged. Did a junior high school student crack the passwords to WSJ's CMS system? Monday, 26 September 2022 Everything-Selloff on Wall Street Deepens on 98% Recession Odds

A global recession probability model by Ned Davis Research recently rose above 98%, triggering a “severe” recession signal. The only other times the model’s been that high was during previous acute downturns, such as in 2020 and 2008-2009, according to the firm’s Alejandra Grindal and Patrick Ayres.

“This indicates that the risk of severe global recession is rising for some time in 2023, which would create more downside risk for global equities,” they wrote in a note.

Sunday, 25 September 2022 Buying the Stock-Market Dip Is Backfiring, Investors Keep Piling In Anyway

Instead of rebounding after a tumble, stocks have continued to fall, burning investors who stepped in to buy shares on sale. The S&P 500 has dropped 1.2% on average this year in the week after a one-day loss of at least 1%, according to Dow Jones Market Data. That is the biggest such decline since 1931.

The extended downturn is putting a dent in the popular buy-the-dip trade, a strategy in which many investors found great success after the last financial crisis and particularly during the lightning-fast pandemic recovery.

Absolutly stunning that a timing strategy that has worked really well during *checks notes* the greatest bull market in history hasn't been doing too well during a down year...

Wednesday, 21 September 2022 Powell Signals More Pain to Come With Fed Sending Rates Higher

Federal Reserve Chair Jerome Powell vowed officials would crush inflation after they raised interest rates by 75 basis points for a third straight time and signaled even more aggressive hikes ahead than investors had expected.

“We have got to get inflation behind us. I wish there were a painless way to do that. There isn’t,” Powell told a press conference in Washington on Wednesday after officials lifted the target for the benchmark federal funds rate to a range of 3% to 3.25%.

Sounds like the ol' yield curve is going upside down soon...

Tuesday, 20 September 2022 Fed Set to Reveal ‘Pain’ Coming in Next Stage of Inflation Fight

Federal Reserve officials are about to put numbers on the “pain” they’ve been warning of in recent weeks when they publish new projections for the economy, which could show a substantial rise in interest rates and unemployment ahead as the estimated price tag for reducing inflation.

The US central bank will release its latest quarterly projections Wednesday following a two-day policy meeting in Washington, where officials are expected to raise their benchmark rate by three-quarters of a percentage point for the third time in a row.

Thursday, 15 September 2022 Mortgage Rates Top 6% for the First Time Since the 2008 Financial Crisis

The average rate on a 30-year fixed mortgage climbed to 6.02% this week, up from 5.89% last week and 2.86% a year ago, according to a survey of lenders released Thursday by mortgage giant Freddie Mac. The last time rates were this high was in the heart of the financial crisis almost 14 years ago, when the U.S. was deep in recession.

Tuesday, 13 September 2022 Schools Are Back and Confronting Severe Learning Losses

National data show that children who were learning to read earlier in the pandemic have the lowest reading proficiency rates in about 20 years.

The U.S. Department of Education last Thursday released data showing that from 2020 to 2022, average reading scores for 9-year-olds slid 5 points—to 215 out of a possible 500—in the sharpest decline since 1990. Average math scores fell 7 points to 234, the first statistically significant decline in math scores since the long-term trend assessments began in the 1970s.

Learning loss generally is worse in districts that kept classes remote longer, with the effects most pronounced in high-poverty districts, researchers say.

Covid's most lasting impact in the USA will be a terrible acceleration of wealth inequality for generations to come.

US Inflation Tops Forecasts, Cementing Odds of Big Fed Hike

The consumer price index increased 0.1% from July, after no change in the prior month, Labor Department data showed Tuesday. From a year earlier, prices climbed 8.3%, a slight deceleration, largely due to recent declines in gasoline prices.

Particularly ugly to see inflation once again rising on a month-over-month basis.

Monday, 12 September 2022 NY Fed Says Consumers Saw in August Steep Declines in Future Inflation

The bank said in its August Survey of Consumer Expectations that one year from now, households see inflation at 5.7%, down from the 6.2% they predicted in the July survey.

How much of a predictive indicator is consumer sentiment on inflation? I'd like to know if this same survey saw the current levels of inflation coming.... That said, inflation expectations are self-fulfilling once they begin to ramp up, so very good news to see this tempered a bit.

Kanye West Is Done With Corporate America

Ye intends to open his own Donda campuses, named after his late mother, across the country, which will house shopping, schools, farms and dorms all together. Products sold there will be unique to Yeezy’s physical and online shops and designed by existing Yeezy staff.

Somehow incorporate blockchain and it sounds like something Adam Nuemann would be interested in.

Tuesday, 30 August 2022 Elon Musk Cites Twitter Whistleblower in New Letter Seeking to Scrap Deal

Mr. Musk’s lawyers wrote in the letter that the facts supporting the whistleblower complaint were known to Twitter when they agreed to sell the company to Mr. Musk and when Mr. Musk initially sought to abandon the deal in July.

I still haven't seen anything borderline compelling indicating that Musk isn't going to be compelled to close this deal. Never bet against such deep pockets, though.

Thursday, 11 August 2022 Treasury Yield Curve Inversion Has Scope to Deepen

The two-year Treasury yield was 48 basis points above the 10-year rate on Wednesday, after coming within a whisker overnight of touching the 50-basis-point milestone last seen in August 2000. That’s based on expectations the Fed’s rate will peak at around 3.5%, from a current range of 2.25%-2.5%, according to the strategist.

If the expected peak rises a half point to 4% with no change in the market’s assessment of the neutral rate of monetary policy, the curve inversion has scope to widen to 85 basis points, Swiber wrote.

Despite the current rally, these indicators still point in the direction of upcoming weakness. Seems like we still have a long ways to go before we're out of the woods.

Tuesday, 26 July 2022 Myth of ‘Free’ Checking Costs Consumers Over $8 Billion a Year

Many Americans enjoy free checking accounts on the backs of the fees paid by poor people. Customers who pay overdraft fees again and again—who typically have no more than a few hundred dollars in the bank—are responsible for over half the profits from mass-market consumer checking accounts at the biggest US lenders.

For their part, bank executives see it differently, saying that customers who never make good on their overdrafts force them to write off millions of dollars. The fees, they argue, enable them to shoulder the costs and offer a lifeline to customers.

It is trivially easy for a bank to just disallow NSF charges, and they routinly do it when it serves their interest. But if they can instead bleed people dry with fees, they will. Wells Fargo, in particular, has proven time and again to be a leech on the American consumer.

Great article, with terrific graphics.

Why the Fed May Soon Need Treasury Help

When the Fed announces a higher target range for the federal-funds rate (currently 1.5% to 1.75%), it implements its decision by raising what it pays both on reserve balances (currently 1.65%) and on reverse repurchase agreements (currently 1.55%). Money to pay for these interest expenses comes out of the Fed’s interest earnings on its own portfolio.

The tricky situation the Fed now faces is that its own net interest income—$116.8 billion in 2021, of which 93% was remitted to the Treasury—will soon be exhausted by the higher interest rates it intends to pay on those combined cash funds. A target federal-funds range of 3.25% to 3.5% by year-end would have the Fed shelling out more than $195 billion annually to maintain both reserves and reverse repurchase agreements at current levels. The Treasury will have to advance funds to cover the gap.

Sunday, 24 July 2022 Weak Earnings Reports Aren’t Fazing Investors After Brutal Year for Stocks

So far this reporting season, shares of companies in the S&P 500 that have missed Wall Street’s earnings expectations have slipped 0.1% on average in the two days before their report through the two days after, according to FactSet. That compares with the five-year average of a 2.4% decline.