Don't Look Down
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The S&P 500 Shiller CAPE Ratio, also known as the Cyclically Adjusted Price-Earnings ratio, is calculated by dividing the current price of the S&P 500 by the 10-year moving average of its inflation-adjusted earnings. The Shiller Ratio was 38.26 as of 2024-11-01. The median historical value is 15.96.
Per Goldman Sachs and
, recent appreciation of equities in the US is mostly due to multiple expansion, not underlying business performance.
From Jurrien Timmer, Director of Global Macro at Fidelity:
“While the P/E ratio has no predicative qualities over the short-term, they do matter for the long term, as high valuations create a hurdle rate for future gains. A Goldman Sachs paper made a splash last week in calling for a lost decade ahead of mere 3% annual returns. While my CAPE model below shows a better outcome, I agree with the direction of travel: 10-year CAGRs peaked in 2021 and are likely to revert back to trend (10%) and below in the coming years. My version of the CAPE model (using the 5-year price/cash ratio) suggests a 6% CAGR over the coming decade, although it looks like we still have a few years left before the mean reversion sets in.”
Current valuation gap between US and non-US equities.
The Free Cash Flow Yield of the S&P 500 is currently 2 standard deviations below its long-term average.
Source:
The Warren Buffett Indicator - the Market Cap to GDP ratio - has reached a new all-time high, surpassing levels seen during both 2000 and 2021.
Source: Barchart
This is how Buffett is responding to the indicator that bears his name:
Good stuff! Thanks Tyler