Market Dashboard – October Update


For explanation of the measurements, please see this post.

Rather ugly October which has already recovered much of its losses. The S&P lost about 7% and international about 8%. The disparity between EAFE and US markets is now at 13% on the year.

The short term dynamics look favorable with the yield curve and unemployment claims showing relaxed financial pressures. Longer term, the outlook remains poor. As this post on investing around the business cycle suggests, the bread in equities is buttered during the initial years in recovery from a recession, not during the late cycle. In case you missed it, a discussion on why you might not want to be a cowboy at this stage of the cycle was published earlier this month.

In correlations, bonds have broken through negatively (as you would expect in times of market turmoil) to about -0.6.

Dashboard & Returns

market returns in 2018

market returns in 2018

Valuations & Forward Returns

The black line in this chart is a measurement of market valuation (the Buffett Indicator) over history. It is defined at the market capitalization of stocks divided by gross domestic product. The higher the number, the more expensive stocks are.

The red line, by contrast, indicates the 10 year returns for stocksĀ subsequent to the moment in time. For example, if you purchased stocks in 1998, between 1998 and 2008 there was an approximate 4% loss per year from equities.

Needless to say, these two charts are virtually mirror images of each other. This is because long-run returns are almost entirely dependent on starting valuation (see this post for a discussion).

projected forward returns


See this post to learn about why inverse correlation is a good thing or this post to understand more why this is important.

market correlations


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