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James Li
James Li
Articles (611)  | Author's Website |

US Market Remains Significantly Overvalued Despite October Slump

Buffett’s favorite market indicator falls to approximately 135% as Dow continues negative momentum

Warren Buffett (Trades, Portfolio)’s favorite market indicator tumbled from its Oct. 1 reading of 147.8% to 135.4% on Friday following an “October slump” that saw each of the “FAANG” stocks shed over 7% during a spooky month for investors.

US markets continue October slide on Apple’s announcement on termination of iPhone-sale reports

The Dow Jones industrial average sank nearly 150 points in morning trading, led by Apple Inc.’s (NASDAQ:AAPL) 7% nosedive following weak December-quarter revenue guidance and Chief Financial Officer Luca Maestri’s announcement that the Cupertino, California-based tech giant will no longer report iPhone, iPad and Mac unit sales going forward.

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CNBC columnist Sara Salinas reported that top analysts denounced the move, saying that it increases “fears the company has something to hide.” Daniel Ives of Wedbush Securities said in a statement the “jaw-dropping” announcement represents a “tough pill to swallow” for Wall Street: Over the past 10 years, tracking iPhone units is “critical to the thesis” and has become “habitual” to investors. While new product launches “catalyzed Apple to focus more on segment revenues,” skeptics are engendering fears that higher average selling prices making up declines in iPhone sales introduces the potential for Apple to “conceal softer sales in future quarters,” according to Jefferies Financial Group Inc. (JEF) analyst Timothy O’Shea.

Table 1 lists the performance of a portfolio that invests in 100 shares of each of the “FAANG” stocks on Oct. 1: Facebook Inc. (NASDAQ:FB), Apple, Amazon.com Inc. (NASDAQ:AMZN), Netflix Inc. (NASDAQ:NFLX) and Google parent Alphabet Inc. (NASDAQ:GOOGL).

Symbol

Company Name

Current Price

Change (%)

Value

Gain

AMZN

Amazon.com Inc

1,672.93

7.40 (0.44%)

167,293

-33143 (-16.54%)

NFLX

Netflix Inc

317.01

-0.37 (-0.12%)

31,701

-6442 (-16.89%)

GOOGL

Alphabet Inc

1,080.90

-5.09 (-0.47%)

108,090

-12763 (-10.56%)

FB

Facebook Inc

151.09

-0.66 (-0.44%)

15,109

-1135 (-6.99%)

AAPL

Apple Inc

207.72

-14.50 (-6.53%)

20,772

-1954 (-8.6%)

Summary

   

-2.64 (-1.42%)

$342,965.00

$ -55,437.00 (-13.91%)

Table 1: Summary of losses for each FAANG stock for the period between Oct. 1 and Nov. 2

Stock market remains significantly overvalued

The Berkshire Hathaway Inc. (NYSE:BRK.A)(NYSE:BRK.B) CEO’s market indicator stood at 135.4%, which is still above the “significantly overvalued” threshold of 115%. Based on this market valuation level, the stock market is expected to return -1.3% per year over the next eight years.

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Disclosure: No positions.

About the author:

James Li
I am an editorial assistant and researcher at GuruFocus. I have a Master's in Finance from SMU, and I enjoy writing reports on financial trends and investor portfolios. Follow me on Twitter at @JamesLiGuru!

Visit James Li's Website


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