11/28/2024
Motley Fool wrns that the CAPE indicator and Buffet indicator are at all time highs.
That suggests what I have been discussing, a serious correction. Then of course they recommend buying three stocks, I did not click there as I am sure it requires a subscription.
Be sure to read about both indicators.
From Motley Fool a previous post
Most investors are likely familiar with the price-to-earnings (P/E) ratio, which divides a company's share price into its trailing-12-month earnings per share (EPS). The traditional P/E ratio can be a fine tool for quickly assessing relative value for mature stocks, but it's often lacking in the sense that it fails to factor in future growth potential and struggles during shock events.
By comparison, the S&P 500's Shiller P/E ratio, which is also commonly known as the cyclically adjusted P/E ratio, or CAPE ratio, is based on average inflation-adjusted EPS from the previous 10 years. Examining 10 years' worth of earnings data smooths out the impact of shock events and leads to apples-to-apples valuation comparisons.
As of the closing bell on Nov. 25, the S&P 500's Shiller P/E reached 38.20, which is or more less a high reading for the current bull market, and more than double the 153-year average of 17.17, when back-tested to January 1871. More importantly, this marks the third-highest Shiller P/E reading during a continuous bull market over the last 153 years.'
The only two times the stock market has been pricier than it is now was prior to the dot-com bubble bursting, which saw the S&P 500 and Nasdaq Composite respectively lose 49% and 78% of their value, and during late 2021/early 2022. The Dow, S&P 500, and Nasdaq Composite all endured bear market declines in 2022, with the Nasdaq, once again, getting hit the hardest.
And it's not just the Shiller P/E that's foreshadowing trouble for Wall Street. The valuation tool Warren Buffett once touted as "probably the best single measure of where valuations stand at any given moment," hit its highest reading ever in November.
The "Buffett Indicator," which divides the market cap of publicly traded companies (via the Wilshire 5000 Index) into gross domestic product (GDP), topped 200% for the first time ever in October and nearly reached 206% this month. The average for the Buffett indicator since 1970 is about 85%, with peaks of 144% prior to the dot-com bubble and 107% before the financial crisis.
These historically accurate indicators suggest President-Elect Trump may oversee a sizable stock market correction.
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