Shocking: Today’s Valuation Levels Worse Than At 1929 & 2000 Tops?
In the past we have tried to convey a similar analysis by suggesting that Shiller’s Adjusted S&P P/E ratio today is nearly on par with 1929 top and arguably higher than 2000 tech bubble top.
John Hussman takes it a step further.
Historically-reliable valuation measures now approach those observed at the 2000 bubble peak. Yet even this comparison overlooks the fact that in 2000, the overvaluation featured a subset of very large-capitalization stocks that were breathtakingly overvalued, while most stocks were more reasonably valued (see Sizing Up the Bubble for details). In many ways, the current speculative episode is worse, because it has extended to virtually all risk-assets.
To offer some idea of the precipice the market has reached, this chart shows the median price/revenue ratio of individual S&P 500 component stocks. This median now stands just over 2.45, easily the highest level in history. The longer-term norm for the S&P 500 price/revenue ratio is less than 1.0. Even a retreat to 1.3, which we’ve observed at many points even in recent cycles, would take the stock market to nearly half of present levels.
In other words, those who are purchasing stocks today are paying through the nose. Further, should the stock market correct up to its median, a 50% haircut is not out of the question.
At the same time, who am I to tell you not to buy stocks at 1929 or 2000 valuations.
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