Valuations

Current studies show significant downside potential from current levels. Today's market valuation now more extreme than 1987's, and far above historical medians.

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Major Trend remains positive, total equity exposure remains at 58%, using index options to minimize and reduce risk. The “new valuation era” continues. Demand for U.S. equity funds continues to be key driver.

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A review of the significant stock market positives and negatives as I currently see them. There are now five major positives and five major negatives.

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A review of the major stock market positives and negatives as Steve currently views them. There are now six major positives and four major negatives.

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During the month of January, two major stock market positive factors became more positive, three remained about the same, and one became less positive. Among the four negative factors, all four became more negative.

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The U.S. stock market has entered a new valuation era. The key question now is how long it will endure. Readers still heavily committed to stocks should be extremely wary. This won’t go on forever.

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Weighing In: Updating positives and negatives for stocks...technology leadership is fragmenting — shifting this positive to neutral.

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Recent market discussion has centered around comparisons of today’s stock market with 1987. In order to summarize the comparisons, we have put together a table containing over 30 factors that have stock market significance.

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Weighing In: The big positives and the big negatives for stocks...as we see them. Four possible upsets to bullish complacency.

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“Tech” manias revisited: comparing P/E ratios and Price/Sales ratios.

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Testing of this indicator has offered some strong evidence that potential returns from today's level could be quite minimal.

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Beginning of the end for tech stocks? Maybe not. More “new era” speak — a.k.a. justifications for an overvalued equity market.

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Will the technology stocks continue their market leadership, or is a high tech wreck about to commence?

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Does an “Information Revolution” justify unprecedented equity valuations for the broad market? Another downward inflation revision and a novel way to promote Social Security reform.

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Testing indicates that there is really only minimal stock market analytical value to the concept of “real” dividend yields. It is of very limited use in identifying overvalued markets on a short term basis. Longer term, we found no stock market analytical value here.

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It could be different this time...For a while. Equities at 24%—below normal minimums... Valuations still look excessive...Major Trend still negative. Market still going up.

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Equities now at 24%—below normal minimums. Valuations still look excessive. Major Trend improved, but still negative. Is it 1987 revisited, or a “new era”? It could be different this time, for a while.

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Reducing equities below normal minimum for the first time since the summer of 1987. Intrinsic Value work is now quite overvalued and approaching 1987 peak valuations. However, a 1987 type crash is not expected.

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S&P 500 normalized PE and yield in top (worst) decile of 1926 to date data history. From these valuation levels 12 month total returns average a big fat zero.

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The strong second quarter called for an upward revision in our 1994 earnings estimates. Revised book value calculations for the DJIA and S&P indices were also calculated in August. These proved to be significantly lower than our estimates. Thus, some necessary revisions in our valuation Benchmark work is warranted.

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