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.
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.
With the latest monthly close, the GDP Q2 Third Estimate data, we now have an updated look at the popular "Buffett Indicator" -- the ratio of corporate equities to GDP. The current reading is 131.5%, up from 128.7% the previous quarter.
Quick take: At the end of September the inflation-adjusted S&P 500 index price was 104% above its long-term trend, up from 102% the previous month.About the only certainty in the stock market is that, over the long haul, over performance turns into under performance and vice versa. Is there a pattern to this movement? Let's apply some simple regression analysis to the question.
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. For the earnings, see the table created from Standard & Poor's latest earnings spreadsheet.
With the release of Friday's report on August Personal Incomes and Outlays, we can now take a closer look at "Real" Disposable Personal Income Per Capita. At two decimal places, the nominal 0.04% month-over-month change in disposable income was trimmed to -0.17% when we adjust for inflation. The year-over-year metrics are 1.98% nominal and 0.55% real. The trend since 2013 has been one of steady growth.
Was the March 2009 low the end of a secular bear market and the beginning of a secular bull? At this point, over eight years later, the S&P 500 has set a series of inflation-adjusted record highs based on monthly averages of daily closes. Let's examine the past to broaden our understanding of the range of historical trends in market performance. An obvious feature of this inflation-adjusted series is the pattern of long-term alternations between up-and down-trends.
Quick take: Based on the September S&P 500 average of daily closes, the Crestmont P/E is 115% above its arithmetic mean and at the 99th percentile of this fourteen-plus-decade monthly metric.
Today the Institute for Supply Management published its monthly Manufacturing Report for September. The latest headline Purchasing Managers Index (PMI) was 60.8 percent, an increase of 2.0 percent from 58.8 the previous month. Today's headline number was above the Investing.com forecast of 58.0 percent.
The September US Manufacturing Purchasing Managers' Index conducted by Markit came in at 53.1, up from the 52.8 final August figure. Today's headline number was above the Investing.com consensus of 53.0. Markit's Manufacturing PMI is a diffusion index: A reading above 50 indicates expansion in the sector; below 50 indicates contraction.