How Overvalued is the Stock Market Right Now? STOCK MARKET CRASH IN 2022?

How Overvalued is the Stock Market Right Now? STOCK MARKET CRASH IN 2022?

Over the past year, we have seen the market continue to rise, setting new all-time highs along the way. Given the strong rise from the pandemic crash in 2020, investor fears are rising that valuations may collapse, taking the market down with them. The concerns are understandable, but are they justified? Has the stock market truly become overvalued?

The #StockMarket valuation is determined by many variables. There are several indicators that determine whether or not an asset is fairly valued. Among these indicators, one of the most commonly referenced is the PE ratio. It measures the current share price of a #Stock relative to its earnings per share from the last 12 months. The #PEratio gives you the most honest insight into a company’s value because it looks at actually reported earnings - and not forecasted earnings. But that is also its biggest drawback: It takes historical earnings and compares them with future cash flows that are discounted to today’s value - which can sometimes give you very misleading values.

The next stock market valuation indicator is the forward PE ratio. This is another very common valuation metric, which takes a stock’s current share price and divides it by the earnings per share for the next 12 months. The #ForwardPEratio gives you a more meaningful indication where a stock's valuation stands by looking at future profits. A drawback is that it relies on estimated future earnings, which are not always right. So a company could over- or underestimate earnings which would then give you misleading information.

Another prominent stock market valuation indicator is the Buffett Indicator. ​​This indicator looks at the total value of the US stock market and compares that to the US GDP. The #BuffettIndicator is the ratio of the total US stock market value in relation to the US GDP. This indicator is named after #WarrenBuffett who called it "the best single measure of where valuations stand at any given moment". However, this indicator also comes with some drawbacks. Over time, US companies got larger and more global. If you look at Apple for example, they generate more than half of their revenues outside the US. If you then compare their market value to the national US GDP, then you technically get an overvaluation. Also, this indicator has been showing an overvaluation since 2013.

The next stock market valuation indicator is the #ShillerCAPE Ratio. This one takes the current price of an index, like the S&P 500 for example, and divides it by average earnings not just of the last year - but of the last 10 years. Earnings are inflation-adjusted. Using 10 years of earnings has the advantage that you smoothen out cyclical trends and good or bad years. That’s also where the name of this indicator comes from. #CAPE is short for “Cyclically Adjusted Price Earnings”. This indicator is powerful, but also not perfect.
The #ShillerCAPEratio has been relatively high in the US since the 1990’s but the stock market still produced solid returns.

Where do all these 4 stock market valuation indicators stand right now and how does today’s value compare to their historical averages? Are there other forces that push up stock marke valuations right now? What do other successful investors like Ray Dalio think about current stock market valuations? And what is the best investment strategy in the current financial environment? These are the questions that will be answered in this video. Enjoy!

⏰⏰ Timecodes ⏰⏰
0:00 Intro
0:38 Market Environment
1:50 PE Ratio
2:48 Forward PE Ratio
3:37 Buffett Indicator
5:08 Shiller CAPE Ratio
6:13 Dalio on Stock Market Valuation
6:51 Interest Rate Environment
8:18 Stock vs. Bond Yield
9:06 Final Thought

👉 SUBSCRIBE for more free financial education that will help you to build long-term wealth:
https://www.youtube.com/channel/UCRg3HEhj1yqSKEuSp900kIg?sub_confirmation=1

📷 FOLLOW me on Instagram to get even more financial education: https://www.instagram.com/fu.academy/

⚠️ DISCLAIMER: This video is for educational purposes only and merely cites my own personal opinion. In order to make the best financial decision that suits your own needs, you must conduct your own thorough research and seek the advice of a licensed financial advisor if necessary.

#MarketCrash2022 #StockMarketBubble #MarketCrash #StockMarketCrash #StockMarketOutlook #StockMarket2022

fed taperingmarket crashfed tapering stock market

Post a Comment

0 Comments