The following is an excerpt from JOHN KIMELMAN | April 18, 2016 | Barrons.com |
I guess it was inevitable.
Now that the Dow Jones Industrial Average is back over 18,000 and flirting with an all-time high, many are wondering whether the U.S. stock market is overvalued.
A piece by CNBC.com’s Alex Rosenberg entertains the thought with a look at the a long-time simple measure of market value – the relationship between the Standard & Poor’s total market capitalization and the U.S. Gross Domestic Product, which measures the value of all economic output within U.S. borders.
(Warren Buffett has long been known to look at a variation on this theme: the ratio of market capitalization to Gross National Product.)
Going back to 1964, the S&P 500’s market cap has been 57% of annual US GDP on average,” he writes. “If one excludes the tech bubble, that number falls to 53%. As of the end of March, however, the stocks contained within the S&P are collectively worth 99% of GDP.”
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