The stock market indices closed at record amounts today, September 2.
There is a lot of wondering whether or not the markets are overvalued. I am not qualified to answer that question, but I can provide a little data.
I stick to the S&P 500 for the data. I got the data from the Wall Street Journal today.
Date S&P
September 2, 2019 2976
February 20, 2020 3373
September 2, 2020 3580
My Casio calculator finds this:
September 2 to February 20 -- 13.3% 31.9%*
February 20 to September 2 -- 6.1% 10.5%*
September 2 to September 2 -- 20.3% 20.3%
* annualized rate of change
Interpretation:
Measuring the five month change from September 2019 to the peak in February of 2020 -- the S&P rose by 13.3% or an annualized rate of about 32%.
The market crashed for a while.
Measuring from the previous peak in February 2019 to the most recent peak on September 2, 2020 -- the S&P rose by 6.1% or 10.5% on an annualized rate.
From September 2, 2019 to September 2, 2020, the S&P rose by 20.3%.
Point?
The very high values of the S&P did not come mostly from the recent advances in the market. The market had already risen before the recent crash and that explains most of the increase over the last year.
Yes, the market crashed. And measured against the very low value it attained of 2237 on March 23, 2020 -- the S&P gained 60% as of today, February 2, 2020.
But that 60% can be misleading. The market gained only about 6.1% (10.5% annualized) from peak (Feb 2020) to peak (Sept 2020).
Is the S&P overvalued? Not sure. If it is, it is not so much from what happened after the crash -- and much more the result of gains before it.
For comparison sake the S&P has increased by about 7% per year in the 21st century.
If the factors propelling the S&P 500 from before the crash have dissipated, then it is possible that recent stock market behavior is not particularly strong and might not warrant any worry over peaking.
That's a big if but worth considering before you sell it all.
Dear LSD. I’ve been monitoring your blog from the depths via the Sea-Zoomba conch on-line tel-0-graphy. I infer from your email intro you imply not selling stuff ‘cuz de marketz be on a tear. Maybe yet; maybe neyt—TBD. Look’n back at some-0-yer drum beat critique of the Fed seemz often—if not frequent—that it should pull the plug on—er, drain—bankz reserves of the Fedz much-0 moola stuff’n. Some terra-firma one-handed econz also criticize the Fed’s much-0-moola ‘n low interest ratz fer prop’n up the stock-0-market. My budz in the Deep Sea Tuna School of Econ Legerdemain want to know whether you favor a market-on-a-tear or drain’n the bankz’ Fedz’ moola.
ReplyDeleteNice point my chicken of the sea. How's this for avoidance? I want both. I think that the Fed could pull out trillions from bank excess reserves and no one would even notice it. That should not affect the economy, the stock market, or tides. Cake and eat it too. Err I mean herring and anchovies.
DeleteYummy-yum-yum-yum! Goez down muy muy gude with copious JD!
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