Here's an interesting set of charts that will especially resonate with those of us who follow economic and market cycles. Imagine that five years ago you invested $10,000 in the S&P 500. How much would it be worth today, with dividends reinvested but adjusted for inflation? The purchasing power of your investment has increased to $19,357 for an annualized real return of 13.28%.
The S&P 500 index is arguably the most well-known worldwide. It is based on the market cap of the 500 largest companies in the U.S. The first-ever ETF, introduced in 1989, hoped to mimic the index, but was short-lived due to a lawsuit. Several S&P 500 ETFs have been brought to market since, and we show their performance, as well as the tracking error relative to the S&P 500 Total Return Index (which assumes reinvestment of dividends).
This update is in response to a standing request for real (inflation-adjusted) charts of the S&P 500, Dow 30, and Nasdaq Composite. Here are two overlays — one with the nominal price, excluding dividends, and the other with the price adjusted for inflation based on the Consumer Price Index for Urban Consumers (which is usually just referred to as the CPI).
If I were long in Tesla’s shares I’d be asking certain questions. After all, you’re paying $50 billion for a company that trades completely on the spoils of future dreams.
Here is a summary of the four market valuation indicators we update on a monthly basis.
Our monthly market valuation updates have long had the same conclusion: US stock indexes are significantly overvalued, which suggests cautious expectations on investment returns. In a "normal" market environment -- one with conventional business cycles, Federal Reserve policy, interest rates and inflation -- current valuation levels would be a serious concern. But these are different times.
A question I’m often asked involves the merits of investing in private real estate as an alternative to publicly available REITs. To answer that question, I will turn to the historical evidence.
With the latest July close data and Q2 GDP Advance Estimate, we now have an updated look at the popular "Buffett Indicator" -- the ratio of corporate equities to GDP. The current reading is 129.16%, down from 132.7% the previous quarter.
The Q Ratio is a popular method of estimating the fair value of the stock market developed by Nobel Laureate James Tobin. It's a fairly simple concept, but laborious to calculate. The Q Ratio is the total price of the market divided by the replacement cost of all its companies. This update includes the July close data.
Here is the latest update of a popular market valuation method using the most recent Standard & Poor's "as reported" earnings and earnings estimates and the index monthly average of daily closes for the past month.