Stock Market Value to GDP, article reprise and update….12 September

Stock Market Value to Gross Domestic Product looms over everything we do…and?

$16,617,000,000,000 ! Be aware that the dollar value the Standard and Poor’s 500 which represents approximately 74% of the value of all the United States publicly traded stocks is currently at $16,617,000,000,000 ($16.6 Trillion). We also estimate the dollar value of the non-Standard and Poor’s 500 stocks to have a value of approximately $4 Trillion. (By the way, at its 2001 high, just NASDAQ carried a value of $6.7 trillion which was a ludicrous overvaluation but very few paid attention.)

 

For years, analysts would use the NYSE Index which includes all the stocks listed on the New York Stock Exchange which fairly represented close to the total value of all United States traded stocks. But today we have to consider that there are non-US companies in the S&P 500 and just as important is the fact that over 40% of the profits from the S&P 500 come from outside of the United States. I have tried to balance the total value properly to make the formula somewhat  equal to what it was in the past.

 

*Thus the total value of the publicly traded US stocks is in the vicinity of $21,000,000,000,000 ($21 trillion) putting stocks at 125% of Gross Domestic Product which is approximately $17,000,000,000,000 today. In line with the past percentage, this is high as from 1929 (then at 109% of GDP) and since then it averaged about 80% of GDP until it rocketed up from 1995 to its 180% of GDP level in the year 2000. But again, then the value of the Nasdaq was $6.7 trillion-ludicrous! If I were to equate 2000-2001 to today, not including the Nasdaq, I would guess and it is a guess that the stock market still has a limited upside possibility. Note that when a market commences from these elevated levels and it has occurred twice in the last ninety years-it has brought with it a brutal bear market. What many of us who use stock market value gauges and technical analysis have a problem with is the fact that near zero interest rates have distorted technical and cyclical analysis as well as fundamental analysis.

 

Five years without a harsh correction

*Now we will consider another cyclical indicator that is sending out a warning. If you study long term charts for all asset classes, you will find that if a bull market continues for over five years and four months, a brutal bear market follows. Better and more exact than we are, in his “Fractal Gold Report” service, David Nichols describes the cycle exactly as it occurs and its history; it appeared on www.321gold.com on March 26. Maybe we will exceed that 64 month maximum up move in the stock market, maybe. We are at 66 months now. In the meantime, be prudent!

 

Why no bear market yet?

* Bear Market components are not occurring yet: We are not seeing 1-Rising interest rates. 2-Contracting money supply growth although the velocity of money is quite low. 3-No recession…not yet. So the key ingredients for a bear market are not in place.

 

Stay invested as many stocks are undervalued, but take some profits.

*Key point , we are generally almost fully invested, there are always hundreds if not thousands of undervalued stocks in the US and Canada. We invest in stocks as they suffer through harsh price declines. But as in baseball, we like to know what inning we are in. The value of the stock market to GDP is very enlightening but maybe even more so is the 66 month up-move that continues with no normal 20% correction.

 

*We feel that during periods of stocks having high returns, some profits should be taken off the table. Rest assured that successful investors have always taken profits and will be taking them again and often leave little for others. We expected “pit stops” which would have included a normal 20% decline. We have not had any pit stops. Caution is warranted and perhaps some profits should be taken.