Latest news with #Shiller
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Business Standard
11 hours ago
- Business
- Business Standard
CAPE fear: History suggests rich valuations precede sharp pullbacks
Valuations at current levels have historically corresponded single-digit returns premium Sachin P Mampatta Mumbai Listen to This Article Notwithstanding indices being lower than the all-time high levels touched nine months ago, the stock market has rarely been as expensive as it is now on one particular metric. The 10-year cyclically adjusted price-to-earnings (CAPE) ratio for the BSE Sensex is at 35.2x, according to data based on a study, Forecast or Fallacy? Shiller's CAPE: Market and Style Factor Forward Returns in Indian Equities, authored originally in July 2024 by Joshy Jacob, professor at the Indian Institute of Management, Ahmedabad, and Rajan Raju, director at Singapore-based family office Invespar. The numbers are updated monthly. The latest valuations for May 2025
Business Insider
11-06-2025
- Business
- Business Insider
Stock valuations are hovering at levels that have historically preceded major corrections, Pimco warns
It's been a tranquil few weeks for financial markets as investors wait to see how the US economy holds up under President Donald Trump's tariff regime. But things could change quickly, Pimco warned in a note on Tuesday. By several measures, stock valuations are sitting at levels historically seen before big corrections, the $2 trillion asset manager said in a note written by global economic advisor Richard Clarida, chief investment officer of Fixed Income Andrew Balls, and group chief investment officer Dan Ivascyn. The first gauge they cited is the Shiller cyclically-adjusted price-to-earnings ratio, which compares the current S&P 500 price to a 10-year moving average of its earnings. Its current level of around 36x earnings is in the all-time 94th percentile. The second measure is the equity risk premium, or the projected assumed returns of stocks over 10-year Treasurys based on current valuations. Sitting near zero, the ERP has only been this low 10% of the time. When it's been this low in the past, significant stock-market declines have followed — see the 1987 crash and the dot-com bust in 2000. "A mean reversion to a higher equity risk premium typically involves a bond rally, an equity sell-off, or both," the note said. "The same chart shows two prior times when the premium was zero or negative: in 1987 and in 1996—2001." It continued: "Following the zero equity risk premium in September 1987, the stock market declined by almost 25%, while 30-year real bond yields fell by 80 basis points (bps). In December 1999, the equity risk premium reached its minimum level during the chart period, preceding an equity drawdown of almost 40% that ended in February 2003. In that same time, 30-year real bond yields fell by about 200 bps." High stock valuations make it likely that fixed-income assets outperform stocks in the years ahead, the note said. With yields high and rate cuts probably on the way, investors can clip an attractive coupon and have a good chance of seeing appreciation in the price of bonds down the road. Valuations themselves are poor predictors of near-term stock price action, but if a negative catalyst comes along — a bad jobs report or rising inflation — high valuations leave the market vulnerable to more pronounced downside.
Yahoo
28-04-2025
- Business
- Yahoo
Warren Buffett Absolutely Nailed the Trump-Induced Market Sell-Off. But When Will the Oracle of Omaha Turn Bullish?
By now, it's no secret that Warren Buffett and his company Berkshire Hathaway (NYSE: BRK.A)(NYSE: BRK.B) absolutely nailed the stock market sell-off caused by President Donald Trump's tariffs and global trade tensions. While the market raged in 2024, Buffett and Berkshire stayed conservative, stockpiling a staggering amount of cash and buying very little in stocks. Berkshire also repurchased far fewer shares of its own stock than it has in past years. Whether Buffett and Berkshire foresaw a Trump win in the election and the ensuing trade battle is unknown. But it's clear that Buffett and Berkshire didn't like what they were seeing and largely stayed on the sidelines. With the broader benchmark S&P 500 down about 10% this year (as of April 22), the big question is: When will the Oracle of Omaha turn bullish? Where to invest $1,000 right now? Our analyst team just revealed what they believe are the 10 best stocks to buy right now. Continue » Investors typically only get a look at what large funds like Berkshire are buying once every 90 days or so. That's because large funds are only required to disclose their stock holdings within 45 days of the end of each quarter. Since the first quarter ended on March 31, Berkshire won't need to submit a 13F filing until around May 15. Sometimes, funds will need to file within days of a trade if they acquire a large enough position in a stock or already own a significant amount of a stock they are buying. Berkshire owns large stocks in many of its holdings because its portfolio is so big that to make a difference, it often ends up acquiring a significant amount of a company's outstanding shares. For instance, Berkshire owns nearly 44% of Davita, over 35% of Sirius XM, and over 28% of Occidental Petroleum. As of this writing, Berkshire hadn't submitted any filings disclosing large purchases of new stocks or adding to shares of companies it owns a sizable position in that would require a filing. That doesn't mean Berkshire isn't buying, but we also know that Buffett and the Berkshire team are disciplined and not willing to jump in unless they see "wonderful companies trading at fair prices." Remember, prior to the tariff-induced meltdown this month, the market had pretty much only gone up for about 2.5 years. Despite the sell-off, there's no indication that the market is necessarily undervalued. One metric Buffett likes to look at is called the Buffett indicator, which looks at the market cap of the Wilshire 5000, a benchmark for U.S. stocks, divided by U.S. gross domestic product. Although the Buffett indicator hasn't been below 100% since 2013, it still looks expensive at 176%, which is down from recent all-time highs of over 200%. The Shiller CAPE ratio, which looks at the market cap of the S&P 500 divided by its 10-year average, inflation-adjusted earnings, has dipped down to about 33, near its five-year average but still above its 10-year average. With over $330 billion of cash, cash equivalents, and short-term Treasury bills, it's clear that Berkshire has a war chest of cash it can deploy if something catches its interest. Berkshire has been keen to grow existing positions, so that trend may continue, and Buffett has also been very interested in Japanese stocks lately. Berkshire has also made plenty of great investments in different periods of market turmoil, like when the company bought interests in banks in the wake of the Great Recession. But it's not clear that the market or the U.S. economy has escaped any kind of downturn just yet. There are still many questions regarding where things will shake out with tariffs and what global trade will look like once everyone has played their cards. The consumer was also starting to show some cracks heading into the tariff drama, and the economy may yet still fall into a recession. I doubt Buffett will want to be early with so much uncertainty still in the air. For these reasons, I'm guessing Buffett and Berkshire stayed fairly conservative in the first quarter of the year and will remain very selective regarding any near-term purchases. We'll know for sure in a few weeks. Before you buy stock in Berkshire Hathaway, consider this: The Motley Fool Stock Advisor analyst team just identified what they believe are the for investors to buy now… and Berkshire Hathaway wasn't one of them. The 10 stocks that made the cut could produce monster returns in the coming years. Consider when Netflix made this list on December 17, 2004... if you invested $1,000 at the time of our recommendation, you'd have $594,046!* Or when Nvidia made this list on April 15, 2005... if you invested $1,000 at the time of our recommendation, you'd have $680,390!* Now, it's worth noting Stock Advisor's total average return is 872% — a market-crushing outperformance compared to 160% for the S&P 500. Don't miss out on the latest top 10 list, available when you join . See the 10 stocks » *Stock Advisor returns as of April 21, 2025 Bram Berkowitz has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Berkshire Hathaway. The Motley Fool recommends Occidental Petroleum. The Motley Fool has a disclosure policy. Warren Buffett Absolutely Nailed the Trump-Induced Market Sell-Off. But When Will the Oracle of Omaha Turn Bullish? was originally published by The Motley Fool Sign in to access your portfolio
Yahoo
16-04-2025
- Business
- Yahoo
Should You Buy the S&P 500 Index Below 5,670?
The stock market has been anything but quiet this year. Ripples first appeared when the emergence of China's DeepSeek started to raise questions on valuations of large artificial intelligence stocks. Then weaker economic data pointed to a slowing economy. Following this, President Donald Trump imposed tariffs on imports to the United States, spooking investors. Then Trump announced even steeper tariffs on many countries, ratcheting up trade tensions, and all hell broke loose. Even after the president announced a 90-day pause on the higher tariffs for most countries, the stock market has remained volatile, as investors continue to digest a lot of news with major ramifications. So after everything that's happened, should you buy the broader benchmark S&P 500 index (SNPINDEX: ^GSPC) while it trades below 5,670, the level it traded at before Trump launched steeper tariffs? When Trump initially launched steeper tariff rates on a wide range of countries including China, Cambodia, Vietnam, and the European Union, many market strategists and economists sounded the alarm, saying the steep levies would stymie growth and quickly tip the U.S. economy into a recession, while challenging many companies as Trump attempted to reconfigure the global supply chain all at once. The bond market also sounded the alarm, with the yield on the 10-year U.S. Treasury note initially tumbling but then surging in a bizarre move, considering so many expected economic growth to stall. Following Trump's announcement on April 9 that he would pause most higher-tariff rates for 90 days, stocks ripped at a dizzying speed. The Dow Jones Industrial Average blasted close to 3,000 points higher, while the S&P 500 mooned over 9.5% in the third-best day of trading since World War II. Trump cited the fact that many countries had reached out to the White House to negotiate a trade agreement. While the president left high tariffs in place on China, and actually raised them to 145% (and now faces up to 245% tariffs per a White House fact sheet as of this writing), he also sounded optimistic that the two countries would work out some kind of trade agreement. That still remains to be seen and the U.S. economy had already been showing signs of deterioration in recent months. U.S. consumer sentiment has plummeted and economists have revised U.S. gross domestic product lower, citing Trump's first batch of tariffs, which are very much in place. Twenty-five percent tariffs remain in place on steel, aluminum, and automobiles and there is still a base 10% tariff layer in place on imports from all countries during the 90-day pause. It's also not like the S&P 500 is necessarily trading cheap, either. If you look at the Shiller CAPE ratio, which looks at the index's price over its 10-year average inflation-adjusted earnings, the S&P 500 trades more to the expensive end of where it has since the turn of the century. Part of this can be attributed to a problem the index had coming into this year, where a handful of high-flying artificial intelligence stocks in the index had risen to nosebleed valuations. Despite President Trump pressing the pause button on steeper tariffs for 90 days, I would expect the market to remain volatile, and it is by no means out of the woods yet. Furthermore, the economy and market had started to show some cracks in its armor prior to Trump announcing steeper tariffs and those issues haven't gone away, nor does the market look cheap historically. Nevertheless, the hope is this administration can negotiate trade agreements with most countries, including China. History has shown that you can always buy the market if you have a long-term investing horizon. But this is not the time to be a hero. Continuing to stay disciplined and dollar-cost averaging into the index, which involves investing a set amount of money over regular intervals, is important. This practice will smooth out your cost basis over time. The near term remains very uncertain and the market can certainly continue to go lower. Before you buy stock in S&P 500 Index, consider this: The Motley Fool Stock Advisor analyst team just identified what they believe are the for investors to buy now… and S&P 500 Index wasn't one of them. The 10 stocks that made the cut could produce monster returns in the coming years. Consider when Netflix made this list on December 17, 2004... if you invested $1,000 at the time of our recommendation, you'd have $526,499!* Or when Nvidia made this list on April 15, 2005... if you invested $1,000 at the time of our recommendation, you'd have $687,684!* Now, it's worth noting Stock Advisor's total average return is 818% — a market-crushing outperformance compared to 156% for the S&P 500. Don't miss out on the latest top 10 list, available when you join . See the 10 stocks » *Stock Advisor returns as of April 14, 2025 Bram Berkowitz has no position in any of the stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy. Should You Buy the S&P 500 Index Below 5,670? was originally published by The Motley Fool Sign in to access your portfolio
Yahoo
30-03-2025
- Business
- Yahoo
Do you fear a stock-market crash? Why your worrying is a plus for stocks.
More than half of Americans believe a U.S. stock-market crash is imminent, but that doesn't make it more likely. If anything, in fact, crash anxiety is a contrarian indicator, meaning the stock market performs better when investors are more worried about a crash than when they are relatively complacent. I'd be more worried if the emerging investor consensus were that a crash was unlikely. 'He gave me a week to get out': My son and I bought a house — now I'm homeless and living in a car. Can I sue him? My father died, leaving everything to my 90-year-old stepmother. Do I have a right to ask her if I'm in her will? I met a friend for lunch. When the check arrived, she said, 'Thank you so much for paying!' Was I taken for a fool? 'She has been telling him lies': My sister convinced my father to sign everything over to her. What can I do? I ate noodles during law school and graduated debt-free. Now my sister needs money. Is it OK to say no? We know how many investors are worried about a crash because of a recent survey conducted by Allianz Life of a 'nationally representative sample of 1,004 respondents age 18+.' According to the insurance company's 2025 Q1 Quarterly Market Perceptions Study, 'more than half (51%) worry that another big market crash is on the horizon.' See: More than half of Americans are now worried about a stock-market crash: survey We know that crash anxiety is a contrarian indicator by analyzing survey data compiled since 2001 by Yale University professor Robert Shiller. One question in each monthly survey is: 'What do you think is the probability of a catastrophic stock-market crash in the U.S., like that of October 28, 1929, or October 19, 1987, in the next six months?' The chart above plots what I found. The S&P 500's SPX total-return index, on average, performs better following months in which crash risk is particularly high than after months in which that risk is deemed to be especially low. There's no way of knowing whether Shiller's survey would agree with the Allianz Life survey that crash anxiety is especially high right now. That's because Shiller's survey is reported with a three-month lag, and the latest reading is for December. Based on the many emails I get from readers, however, I can confirm that anxiety about a possible stock-market crash is definitely higher than it has been in years. One reason why crash anxiety is a good contrarian indicator is that the actual probability of a stock-market crash in the next six months is very low, far lower than the subjective probabilities that investors assess even when they are exuberant. Since investors' beliefs have so little relationship to reality, they instead reveal a lot about their mood. We know the objective probability of a crash because of research conducted by Xavier Gabaix, a finance professor at Harvard University. According to the model he and his co-authors developed, there is just a 0.33% probability of an October 1987–magnitude one-day plunge (a 22.6% decline, to be exact) in the next six months. Contrast that with the 51% of respondents in the Allianz Life survey who worry that a crash is 'on the horizon.' Note that the focus on this research is on one-day plunges, and not on the stock market's long-term potential — which, as I noted in a recent column, is quite bleak. But a major bear market can occur without the stock market suffering any huge one-day plunges. Take the bear market that ensued after the internet bubble burst in March 2000, for example. The S&P 500's worst one-day return during that decline was a loss of 'just' 5.8%. In the global financial crisis of 2008-09, the benchmark's worst one-day return was a 9% loss. Clearly, bear markets can produce huge losses without suffering one-day crashes along the way. The bottom line: Be far more worried about a major bear market than a one-day crash. Mark Hulbert is a regular contributor to MarketWatch. His Hulbert Ratings tracks investment newsletters that pay a flat fee to be audited. He can be reached at . Also read: Here's a reminder of how vulnerable our economy is to a severe bear market The 'misery index' is creeping higher. Does that spell doom for stocks? These are the 10 fund-management firms that lost the most money in the past decade. You'll never guess No. 1. 'I'm being held hostage': I bought my parents' house and added my brother to the deed. He won't pay the mortgage. What now? 'My daughter harasses me and wants to know where I go': She's after my money. How do I protect myself? 'They hate our generation': My son and daughter-in-law want us to sell our house — and move to Oregon to start a commune If you love dividend stocks, check out these 11 companies with room to boost their hefty payouts Sign in to access your portfolio
