Aggregate Market Value Index
Updated December 1, 2023. The Aggregate Market Value Index model (AMVI) is a composite index of several of our market valuation models, providing a high-level view of current US stock market prices relative to historical valuation trends. This provides an idea of how overbought or oversold the market may be. The model is updated at least weekly.
This view shows our AMVI score over time. Notice that the market infrequently goes outside of the +/- 1 standard deviation range, and almost never passes beyond +/- 2 standard deviations.
This view is the same chart as before, but also shows (in purple) the 5-year subsequent S&P500 returns on any given date. Hover over the chart for more detailed values. Notice that very high AMVI datapoints are paired with low (or negative) future S&P500 returns. Likewise, very low AMVI scores tend to correlate well with very high subsequent S&P500 returns.
This view shows the same data as before, but now presented as a scatterplot. Each dot represents a month-end value since 1962, showing the AMVI score on the x-axis, and subsequent 5-year S&P500 returns on the y-axis. Notice that the data trend tends to have a downward slope. This indicates that as AMVI scores go from negative (undervalued) to positive (overvalued), the subsequent S&P500 returns get worse and worse.
The blue line shows the linear regression of the data (R-squared value of 0.41).
While the intention is to present a view of overall market valuation, and therefore a signal as to market upside or downside, this is not a short term trading model. Markets can stay extremely under or over valued for long periods of time. Trying to time the market, even using long term business cycles such as this, has historically underperformed a buy-and-hold investment strategy.