Stock Market Valuation September 1st 2010

Median: 15.76


Min: 4.78 (Dec 1920)


Max: 44.20 (Dec 1999)


Numbers from Previous Market lows:


Mar 2009 13.32


Mar 2003 21.32


Oct 1990 14.82


Nov1987 13.59


Aug 1982 6.64


Oct 1974 8.29


Oct 1966 18.83


Oct 1957 14.15


June 1949 9.07


April 1942 8.54


Mar 1938 12.38


Feb 1933 7.83


July 1932 5.84


Aug 1921 5.16


Dec 1917 6.41


Oct 1914 10.61


Nov 1907 10.59


Nov 1903 16.04


Data and chart courtesy of [www.multpl.com]


This is moderately over valued from the average P/E as shown above.


Current P/BV 2.07





This is a very rough estimate, it is nearly impossible to get an exact number for P/B on a specific date to my knowledge.


The current P/BV is 2.07; this is below P/B of 2.09 I measured in my previous article.


The average Price over book value of the S&P over the past 30 years has been 2.41. This indicates the market is undervalued. Book value is considered a better measure of valuation than earnings by many investors including legendary investor Martin Whitman. He states that book value is harder to fudge than earnings. In addition book value is less affected by economic cycles than one year earnings are. P/BV therefore provides a longer term accurate picture of a company’s value, than a TTM P/E.


Current Dividend Yield 2.04








The current dividend yield of the S&P is 2.04. This number is higher than the 1.99 yield from last month.


It is hard to determine on this basis whether the market is overpriced. The dividend yield for stocks was much higher in the begging of this century than the later half. The dividend yield on the S&P fell below the yield on Ten-Year treasuries for the first time in 1958. Many analysts at the time argued that the market was overpriced and the dividend yield should be higher than bond yields to compensate for stock market risk. For the next 50 years the dividend yield remained below the treasury yield and the market rallied significantly. In addition the dividend yield has been below 3% since the early 1990s. While I personally favor individual stocks with high dividend yields, I must admit that the current tax code makes it far favorable for companies to retain earnings than to pay out dividends. Finally, as I noted above the current economic environment has zero percent interest rates and low bond yields. During periods where yields are low it is logical for income oriented investors hungry for yield to be bid up the market, and dividend yields to decrease. I think it is hard to claim the market is overbought based on the low dividend yield.


Median: 4.29%


Min: 1.11% (Aug 2000)


Max: 13.84% (Jun 1932)


Numbers from Previous Market lows:


Mar 2009 3.60


Mar 2003 1.92


Oct 1990 3.88


Nov1987 3.58


Aug 1982 6.24


Oct 1974 5.17


Oct 1966 3.73


Oct 1957 4.29


Jun 1949 7.30


Apr 1942 8.67


Mar 1938 7.57


Feb 1933 7.84


July 1932 12.57


Aug 1921 7.44


Dec 1917 10.15


Oct 1914 5.60


Nov 1907 7.04


Nov 1903 5.57


Data and chart courtesy of [www.multpl.com]


Market Cap/GDP 74.9%














The current level of is 74.9%, is higher than the 73.4% number from last month.


StockMarket Capitalization as a percentage of GDP is another metric albeit less commonly used than other metrics, to value the market. Between 50-74.9% market capitalization as percentage of GDP is considered Modestly Undervalued. However the metric is only a drop away from being in the 75-90% range which is considered fairly valued. Based on Guru Focus data the market should return about 7.2% per year based on the current value.


Warren Buffett has stated that market capitalization as a percentage ofGNP is “probably the best single measure of where valuations stand at any given moment.”


According to Barron’s the ratio got as low as 40% in the late 1940s, when investors feared another depression, and in the inflationary 1970s.


Historic Data:


Min 35% in 1982


Max 148% in 2000.


Data and charts courtesy of Gurufocus.com


Current Tobin’s Q 0.94