Current Market Valuation


Last Updated June 2023


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Too much online financial reporting is meant to drive fear, engagement, and clicks. The vast majority of the time the economy and stock market are doing fine. But, sometimes not! Current Market Valuation (CMV) is a resource to objectively track long-term indicators of market valuation. This site aims to be an educational resource on market cycles and fundamentals -not to be a stock trading strategy or timing system. Research has consistently shown for decades that the best investment strategy (particularly for retail investors) is long term buy-and-hold, and that the more active trading retail investors do, the worse they perform. CMV makes judgements about whether or not the market is under/(over) valued relative to historic norms, but those ratings are not necessarily predictive of future rallies/(crashes). Valuation models like this can be wrong for a very long time. Even if the market does revert to norms, it may not be for years, or decades.

As ever, past performance is not indicative of future results. For just a few examples, geopolitical changes (war, trade), technological changes (AI, automation), or geologic changes (climate change) could/should/do permanently deviate the market from the norms we've seen in the modern era. Even without any such obvious causes, there is no intrinsic guarantee that markets will correct and return to historical norms. There are very good reasons to disbelieve that any of these models will be useful in predicting future market performance, and each model description makes a good faith effort to explain those counterarguments. And regardless of it all, sometimes the market is just irrational, and the market can stay irrational longer than you can stay liquid.

CMV strives to be as transparent as possible in data and methodology. Nothing on this site is either complex or proprietary. Most data are publicly available from free sources, and always cited.

Investment Advice

We don't give much specific investment advice here, but try to always reinforce the following:

1) Day Trading Doesn't Work

The various studies and data outlining the extent to which day trading is a horrible idea are outlined here. Suffice it to say, day trading is everywhere and always a money losing proposition. Anyone who claims otherwise is trying to sell you something. If you absolutely must engage in this activity (we get it) - you should treat it the same way you would treat a gambling budget on a trip to Vegas: expect to lose 100% and consider it an entertainment expense.

2) Stock Picking Doesn't Work

Even if you're committed to buying good companies and holding them for the long term, picking individual stocks is a bad idea. No matter how smart you think you are, it's simply statistically very, very unlikely that you'll be able to outperform the broad stock market. Even professional mutual fund managers who spend their entire careers doing this exact job still don't reliably outperform the market. If you absolutely must do this (again, we get it), make individual stocks less than ~15% of your total portfolio. It's simply not worth the risk.

3) Invest in Broad Market ETFs

This is the most boring answer, but you should probably just invest in broad ETFs that track the overall stock market. These have extremely low fees, high liquidity, and offer the best long term return. This is the right answer for almost everyone. That said, depending on your specific needs (liquidity requirements, tax considerations, etc), ETFs may not be right for you. This isn't financial advice, and you should consult with an advisor before making financial decisions.

For those who are seeking additional investment advice, Reddit's r/personalfinance community is a great place to start. Their wiki on general personal finance is fantastic, and specifically the subsection on general investment advice is great.

Our Ratings

CMV tracks several long term macroeconomic indicators, comparing current values to their historical norms. The methodology is explained in each model's individual page, but generally each model looks for the over/undervaluation of the respective indicator in terms of how many standard deviations the current value is from the historical norm.

Our market ratings are:

Valuation Indicators

Strongly Overvalued This rating corresponds to values greater than 2 standard deviations from the mean, and should statistically occur about 2% of the time.

Overvalued This rating corresponds to values between 1 and 2 standard deviations from the mean, and should statistically occur about 14% of the time.

Fairly Valued This is by far the largest rank, corresponding to values between -1 and 1 standard deviation from the mean. Our models should be ranked as Fairly Valued about 70% of the time. Depending if the value is greater than / less than zero, we may present this a 'slightly over/undervalued'.

Undervalued This rating corresponds to values between -1 and -2 standard deviations from the mean, and should statistically occur about 14% of the time.

Strongly Undervalued This rating corresponds to values less than -2 standard deviations from the mean, and should statistically occur about 2% of the time.

Note that our other model categories (recession indicators, market sentiment) use the identical +/- standard deviation methodology as above, though these are assigned different terminology since those models do not track valuation. Those ratings are:

Recession Indicators

Very High, High, Normal, Low, Very Low.

Market Sentiment

Very Optimistic, Optimistic, Neutral, Pessimistic, Very Pessimistic.

Note that this one is a bit counterintuitive. An optimistic/bullish sentiment can be good news, since that tends to extend ongoing rallies. However, we look at it from the perspective of: are we "risk on" and heading towards a bubble, or away from one? In this sense, market optimism is akin to the market being overbought. As Warren Buffett said: "be fearful when others are greedy ... and greedy only when others are fearful".

Disclaimer on Financial Advice

Current Market Valuation is meant to be used as an educational resource to help readers understand today's market in a historical perspective. This might be useful context to have when making investment decisions, but this is absolutely not presented as, or intended to be used as a singular investment strategy.

The information on this website is provided for informational purposes only. Do not consider the information as individualized financial advice. Please contact a certified financial planner or other professional so they can tailor their advice to your individual circumstances.

The valuation models that are explored on this site are very long term focused. The trends analyzed and illustrated here play out over years, or even decades. When we say that the market is "overvalued", that is in reference to historical norms only, not a prediction of future results.

Please, please, please do not use CMV to try to time the market. Day trading and/or market timing is a fantastic way to lose money.

Said Another Way...

The information provided on ("CMV") is for informational purposes only. It should not be considered legal or financial advice. You should consult with an attorney or other professional to determine what may be best for your individual needs.

CMV does not make any guarantee or other promise as to any results that may be obtained from using our content. No one should make any investment decision without first consulting his or her own financial advisor and conducting his or her own research and due diligence. We are not a registered investment advisor, broker/dealer, securities broker, or financial planner. To the maximum extent permitted by law, CMV disclaims any and all liability in the event any information, commentary, analysis, opinions, advice and/or recommendations prove to be inaccurate, incomplete or unreliable, or result in any investment or other losses.

Content contained on or made available through the website is not intended to and does not constitute legal advice or investment advice and no attorney-client relationship is formed. Your use of the information on the website or materials linked from the Web is at your own risk.

Privacy Policy

Effective and last updated June 1, 2022.

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