Market Dashboard – September Update


For explanation of the measurements, please see this post.

The carnage in EAFE stops (albeit momentarily?) as it outperforms US stocks for September. They continue to decouple somewhat  Year to date, the S&P 500 is still the club house leader, posting nearly a 10% gain (including dividends) year to date. Bond returns, which had recovered much of their losses for the year in August, took a hit to the chin and are now down year to date 1.5%.

The forward outlook for returns is uglier as valuations are more stretched and the yield curve continues to weaken. The real-time view of the economy remains strong and robust with unemployment claims continuing to fall.

In correlations, bond continue their inverse relationship with stocks (as they have for most the year) at a clip of about -0.3.

Dashboard & Returns

economic dashboard

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 stocks 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).

valuation vs forward return


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

s&p500 correlations

1 Response

  1. Great charts. Love the 10-year forward returns valuation chart.