From a valuation perspective, the stock market is in one big bubble.
The insight: Macquarie strategist Viktor Shvets highlighted several valuation metrics on stocks that look massively stretched in a new note.
They include:
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The value of US equities is now at about 2.5 times GDP. The market equity value of US corporations is more than three times GDP. Both ratios are at the highest ever level versus the historical average of about 100%.
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Schiller’s cyclically adjusted PE ratio (CAPE) stands at about 42x, double the average since 1950 (about 20x) and about 3x over the long term (since 1881). The CAPE ratio was only higher in the lead-up to the dot-com crash.
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Today’s bull market commenced in early 2009 and has already delivered real gains of more than 500%, approaching the upper limits of prior bull phases over the past 150 years.
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Concentration of returns is now the highest in the modern era, with the top 10 S&P 500 (^GSPC) stocks accounting for more than 40% of market capitalization.
“Any of the above should make investors nervous,” Shvets said.
A view of stocks: Just yesterday, the Dow Jones Industrial Average (^DJI) surged another 875 points to close at a fresh record of 51,562, led by massive gains in UnitedHealth (UNH), Goldman Sachs (GS), JPMorgan (JPM), and Johnson & Johnson (JNJ) as investors hunt beyond the tech space for value.
The rally has been fueled by stronger-than-expected corporate earnings, massive spending on AI infrastructure, and growing confidence that the economy can keep expanding even as growth moderates. The acceleration in AI demand has recently driven massive earnings day surprises from Cisco (CSCO), Snowflake (SNOW), Hewlett Packard Enterprise (HPE), and Dell (DELL) — with big corresponding pops in their stock prices.
The end result is one of the strongest stretches for Wall Street in years, with all three major indexes sitting near all-time highs and investors once again asking how much further this bull market can run.
Shvets noted, “A collapse of the US equity bubble will have implications on almost all assets globally, and in many cases, more severe than in the US itself.”
Bottom line: Stats are just numbers — one could’ve made the case that the stock market was overvalued three months ago. Even still, it would be wise to keep a closer eye on market valuations going forward — nothing goes up in a straight line forever.
Brian Sozzi is Yahoo Finance’s Executive Editor and a member of Yahoo Finance’s editorial leadership team. Follow Sozzi on X @BrianSozzi, Instagram, and LinkedIn. Tips on stories? Email brian.sozzi@yahoofinance.com.
