The US stock market recently presented itself very volatile. As a US economist now showed, two noticed measurements show that the ratings are currently covered.
• Donald Trump ensures uncertainty on the US exchanges
• Economists: Two rarely noted measurements signal overvaluation
• The famous buffet indicator also speaks for overvalued shares
After the S&P 500, which reflects the wide US stock market, was able to grow by strong 23 percent in 2024, the US exchanges have been very restless in the past few weeks. This is primarily responsible for the US President, who creates chaos and confusion with his erratic customs announcements. Donald Trump initially imposed tariffs on goods from Canada, Mexico and China. At least for the time being, he took the tariffs against Canada and Mexico back at least for the time being, but new tariffs against the European Union are to follow in early April. In view of this uncertainty, there is a concern among investors that the economy and corporate profits could be affected.
Excessive reviews
As “Marketwatch”, citing Troy Ludtka, the senior US economist at SMBC Nikko Securities America, reports that two rarely noticed indicators signal that the broad stock market is currently very high.
The former is a macro framework that records the profit multipliers and core inflation. As Ludtka explained, the two of them had been closely and vice versa in the past, but since the Covid pandemic, the profit multipliers had solved themselves from this relationship to an unprecedented extent. “We are particularly interested in how a return to this basis can be achieved because the inflation and profit expectations are quite high,” explained Ludtka.
The scenario, which is currently emerging, requires a slowdown in inflation to about two percent without the decline in income. “If the current trend continues, the US markets will soon penetrate areas that could only be observed in the IT bubble! In other words: If inflation goes back alone, we historically have to deal with an irrational exuberance,” said the economist. And if the price-profit multipliers also fall, the economy could be confronted with a possible downturn because, in his opinion, the US shares are overvalued.
In addition, it turns out that the exuberance of the stock market also seems to be confirmed by the ratio of the S&P 500 to the money supply M2. According to Ludtka, the latest data with this second measurement variable has shown the highest value since the fourth quarter of 2000.
Buffett indicator at record high
In addition to these two little-known measurements, the buffet indicator, a scale of evaluation named after the famous star investor, is also signaling that the stock market is moving at a historically high level of evaluation: According to Marketwatch, the ratio of the entire market capitalization of all US shares has recently achieved an all-time high of over 2: 1 is more than twice as high as the historical average of 0.95 since 1970. With such a level, the indicator, which the oracle of Omaha itself has described as “probably the best single scale for the state of the ratings at a specific time”, indicates that the stock market could be significantly overvalued.
Editor finance.net