More Upside in International Stocks

The continued grind of the bull market may not be justified, according to an article in this week’s Investment News. In fact, the article, written by Joe Smith, senior market strategist at CLS Investments, argues the positive data points currently baked into the market—a dip in unemployment, improved corporate sales and earnings, additional consumer spending—don’t necessarily indicate a “positive view for investors in the U.S.” Domestic stocks, it asserts, look expensive compared to those overseas, and… Read More

U.S. Stocks Show Increased Global Footprint

The post-election market rally coupled with the strength of the U.S. dollar has increased the share of U.S. stocks as a percentage of the global economy, according to this week’s Wall Street Journal. FactSet data reflect the market capitalization of U.S. stocks at approximately $25 trillion last Friday, a figure that represents 40% of the value of global equities, the article says—the highest level since 2006. “Investors and traders have largely interpreted the president-elect’s policy… Read More

A Buffett Market Valuation Indicator

There is a mixed bag of outlooks concerning the current bull market and its staying power. In an article posted yesterday on CNBC.com, Validea CEO John Reese describes one metric used by Warren Buffett to gauge conditions on the ground and signal where things might be headed. The Buffett mantra of focusing on business fundamentals rather than hearsay transcends to today’s prickly political landscape. Reese writes that the Berkshire Hathaway CEO believes the “performance of companies… Read More

Is Shiller’s CAPE as Scary as it Seems?

In the 1990’s, economists Robert Shiller and John Campbell created a valuation metric called the “cyclically adjusted price-earnings” ratio, or CAPE. A Wall Street Journal article from earlier this month examines whether this metric might be sending a false signal that the market is overheated. The CAPE ratio values shares based on 10 years rather than one year of earnings which, the article explains, “smooths out periods like just prior to the housing bust, when… Read More

Hulbert Highlights Indicators of an Overvalued Market

There are six strong reasons why today’s bull market is on “weak legs” according to Mark Hulbert in a MarketWatch article from earlier this month. He offers the following chart to illustrate that the current stock market is “more overvalued than it was at 79% to 95% of bull market peaks dating back to 1900”: Hulbert comments on current indicators including the following: Price-book ratio of 2.8 is higher than it was during 23 out… Read More

Are Stocks Cheap or Expensive?

Yale’s Robert Shiller and Penn finance professor Jeremy Siegel have long dueled over whether stocks are cheap or expensive, and Daniel Fisher, of Forbes, reviews the arguments in his recent post. Shiller devised CAPE by measuring the inflation-adjusted earnings per share for the S&P over the trailing 10 years, instead of just the most recent quarter or year, and compared that number to long-run averages since 1871. The results showed a strong tendency for CAPE… Read More

Big Opportunity In Small Stocks?

It’s no secret that the market doesn’t look too cheap right now. In fact, by many measures, it’s overpriced. But the difference in the valuation of small stocks and large stocks right now is striking, Validea CEO John P. Reese writes in his latest column for Forbes.com. “Since the end of 2005, my company has been tracking the valuation characteristics of the several thousand stocks in our database, a pretty good approximation of the U.S.… Read More

Comparing CAPE 10 with CAPE 5 or 6 — Market May Not be as Expensive as it Looks

Writing on ETF.com, Larry Swedroe of the BAM Alliance explains that the market looks less overvalued if one uses a period shorter than the commonly used 10-year period in applying the methodology of the Shiller cyclically adjusted P/E ratio (the CAPE 10). The reason for doing this is that “with the Great Recession causing the S&P 500 earnings to not recover to their 2007 level until 2010,” a 10-year period may include distortions created by… Read More

Value Manager Tim Hartch Focuses on High Quality Businesses

Advisor Perspectives highlights the record of value investor Tim Hartch, co-manager of several Brown Brothers Harriman & Co. funds. In the published interview, Hartch explains that his BBH Core Select fund’s “buy-and-own approach, [which] focus[es] on high-quality businesses that are trading at a discount to proprietary intrinsic value estimates.” The goal is “to achieve attractive returns that protect capital in down markets and outperform on a relative basis over time,” noting that “we have historically… Read More

Validea’s Market Valuation Report: Large-Caps Looking Ultra-Pricey

One of the focuses of Validea’s Guru Investor Blog since its inception has been to summarize the opinions of leading market experts on the current market valuation and how that fits into a historical context. To that end, we regularly present a variety of data on both sides of the market valuation debate, which often can lead to different conclusions, but that we hope leads our readers to be more informed about how leading experts look… Read More