S&P 500 overlaid with Shiller PE ratio *update*
已更新
Hello all, thanks for viewing.
This is to update my 2nd of September post, written after re-reading William Poundstone's "How to Predict the Unpredictable." I thought I would chart the Shiller PE ratio on the S&P 500. I did this because I have general feeling is that things are a little over-extended.
In his book, Poundstone points out that in the past 130 years, if people in the US stockmarket had sold their stocks (and invested in cash instruments) when Shiller P/E rose above 28 (and then also decreased 5% from its peak) and bought in again when it dipped below 13 would have avoided the 2 most significant market crashes in that time, thus magnifying their year-on-year returns. Since that post, the PE ratio has remained above 28, but recently dropped 5% from the Jan 2018 high of 33.31 meaning that Poundstone's pre-conditions that point towards a significant correction have been met. It will be interesting to see what happens.
Please forgive the inaccuracy of my overlay, I tried to place the data points as accurately as possible for February and August each year (multpl.com/shiller-pe/table?f=m). From this data PE rose above 28 in December 2016 / Jan 2017 and has remained above that level. My knowledge of equities isn't that strong but I do understand that when PE ratios grow, there is less money to share among investors and dividends shrink. When PE ratios get towards the higher end, investors may come to rely more on growth in capital gains as the main source of returns. This may add more volatility into the market. Increased volatility has been detected since the PE ratio of 28 was exceeded: marketwatch.com/story/the-dow-and-sp-500-have-already-doubled-the-number-of-1-moves-seen-in-all-of-2017-2018-03-26. If competing investments come to be more attractive due to increased interest rates and / or low risk instruments then there may be capital outflows from equities. This comes at a time when 10 year TNX treasury notes are up significantly since 2016 lows and yields seem set to rise to 4.1% by 2020 which may make things quite interesting.
Maybe I am a "glass half empty" kind of guy but when I hear multiple reports of "the longest bull-run in history" but also read parallel analysis that the market is undervalued (marketwatch.com/story/guess-which-of-these-sp-500-valuation-measures-is-telling-the-truth-2018-04-20) my first reaction is to get sceptical.
Disclaimer (for those that need one); I am not a professional, a financial adviser, or your Mom, so please do your own research. This is published for my own education and I have no position in the US market and am not considering taking one. The market is currently in a correction, but a major correction is far from certain at this time.
This is to update my 2nd of September post, written after re-reading William Poundstone's "How to Predict the Unpredictable." I thought I would chart the Shiller PE ratio on the S&P 500. I did this because I have general feeling is that things are a little over-extended.
In his book, Poundstone points out that in the past 130 years, if people in the US stockmarket had sold their stocks (and invested in cash instruments) when Shiller P/E rose above 28 (and then also decreased 5% from its peak) and bought in again when it dipped below 13 would have avoided the 2 most significant market crashes in that time, thus magnifying their year-on-year returns. Since that post, the PE ratio has remained above 28, but recently dropped 5% from the Jan 2018 high of 33.31 meaning that Poundstone's pre-conditions that point towards a significant correction have been met. It will be interesting to see what happens.
Please forgive the inaccuracy of my overlay, I tried to place the data points as accurately as possible for February and August each year (multpl.com/shiller-pe/table?f=m). From this data PE rose above 28 in December 2016 / Jan 2017 and has remained above that level. My knowledge of equities isn't that strong but I do understand that when PE ratios grow, there is less money to share among investors and dividends shrink. When PE ratios get towards the higher end, investors may come to rely more on growth in capital gains as the main source of returns. This may add more volatility into the market. Increased volatility has been detected since the PE ratio of 28 was exceeded: marketwatch.com/story/the-dow-and-sp-500-have-already-doubled-the-number-of-1-moves-seen-in-all-of-2017-2018-03-26. If competing investments come to be more attractive due to increased interest rates and / or low risk instruments then there may be capital outflows from equities. This comes at a time when 10 year TNX treasury notes are up significantly since 2016 lows and yields seem set to rise to 4.1% by 2020 which may make things quite interesting.
Maybe I am a "glass half empty" kind of guy but when I hear multiple reports of "the longest bull-run in history" but also read parallel analysis that the market is undervalued (marketwatch.com/story/guess-which-of-these-sp-500-valuation-measures-is-telling-the-truth-2018-04-20) my first reaction is to get sceptical.
Disclaimer (for those that need one); I am not a professional, a financial adviser, or your Mom, so please do your own research. This is published for my own education and I have no position in the US market and am not considering taking one. The market is currently in a correction, but a major correction is far from certain at this time.
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註釋
註釋
The text on the chart should read high Jan 2018 33.31 (not 2017)註釋
multpl.com/shiller-pe/table?f=m Update for October 24th 2018 29.96 which is 11%+ down from the Jan 2018 high of 33.31. The requirements have been exceeded for a S&P sell signal.註釋
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