Current Market Valuation: Overvalued

We believe in fundamental valuation analysis as the basis of any investment, and made CMV as a resource to quickly and easily track long-term indicators of market valuation. These are presented with background and analysis to be accessible and educational for retail investors.

February 19, 2021: Our models average 1.5 standard deviations above trend, indicating S&P500 is Overvalued.


Core Valuation Models

We currently track five different models to evaluate whether the US stock market is accurately priced, relative to long-term historical patterns and fundamental indicators. Each model is illustrated below, with much more detail available by clicking into each. Models are updated weekly, or as data becomes available.


Yield Curve Model: Fairly Valued

Updated January 31, 2021 » The spread between 10-Year and 3-Month US Government debt was recently negative, illustrating an inverted yield curve. Historically, this has been a very reliable indicator of a recession in the following ~12-24 months after inversion, and recessions correlate with lower stock market returns. The last time this happened was 2006, right before the financial crisis. Before that: 2000, before the .com bust. In the last 50 years this indicator hasn't been wrong.

More Info: Yield Curve »
Yield Curve Chart

Buffett Indicator Model: Strongly Overvalued

Updated February 18, 2021 » The Buffett Indicator (named after Warren Buffett, who claims this as a favorite macroeconomic indicator) is the ratio of total US stock market valuation to GDP. It is currently at 224%, which is 80% (~2.6 standard deviations) higher than its historical trend line, indicating the market is currently Strongly Overvalued.

More Info: Buffett Indicator »
Buffett Indicator Chart

P/E Ratio Model: Strongly Overvalued

Updated February 19, 2021 » The P/E ratio is a fundamental measure of any security's valuation, indicating how many years of current profits it takes to recoup an investment. The aggregate S&P500 P/E (CAPE) ratio is 35.3, which is 80% above the modern-era market average of 19.6, putting the current P/E over 2 standard deviations above the average. This indicates that the market is Strongly Overvalued.

More Info: Price/Earnings »
P/E Ratio Chart

S&P500 Mean Reversion Model: Overvalued

Updated February 19, 2021 » The S&P500 is currently trading 65% above its modern-era historical trendline, indicating that the market is Overvalued.

More Info: S&P Mean Reversion »
S&P500 Mean Reversion Chart

Interest Rate Model: Fairly Valued

Updated February 19, 2021 » The 10Y Treasury bond rate is 1.29%, which is 1.6 standard deviations below normal, indicating stocks should be high. Likewise, the S&P500 value of $3,907 is 1.9 standard deviations above its own respective trendline. Summed together, this gives a composite value of 0.3 standard deviations above normal, indicating that stocks are currently Fairly Valued when considering current interest rates.

More Info: Interest Rate Model »
S&P500 vs 10Y Rates, Std Devs from Trendline


Other Models

As we find other interesting data, we periodically compile and publish other financial charts and models here. While these models (and our commentary on them) typically do make a claim in terms of market valuation, they are not used in our core determination of market valuation. These models are not regularly updated.


Federal Student Loans Outstanding Chart

September 2020

Federal Student Loan Crisis

Data exploring the exponential growth of unbankruptable federal student debt in the last twenty years.


S&P500 Mean Reversion Chart

August 2020

Fed Balance Sheet vs. S&P500

A look at the recent expansion of the Federal Reserve balance sheet, and its correlation with recent stock performance.