A politician in training – “OK! So, I’ve mastered the ‘smile’ – now what?”
A politician in training – “OK! So, I’ve mastered the ‘smile’ – now what?”
In August 2024 – U.S. consumer prices increased by 0.2% with core inflation exceeding expectations
As anticipated in the U.S., prices rose in August 2024, while the annual inflation rate fell to its lowest point since February 2021, according to a Labor Department report on Wednesday 11th September 2024.
This development likely now paves the way for a Federal Reserve interest rate reduction next week but maybe by only 0.25% and not the 0.50% some pundits have predicted.
The consumer price index, which measures a wide array of goods and services costs throughout the U.S. economy, rose by 0.2% for the month, matching the consensus, as reported by the Bureau of Labor Statistics.
This increase brought the year-on-year inflation rate to 2.5%, a decrease of 0.4 percentage points from July 2024 and slightly below the 2.6% prediction.
Nevertheless, the core CPI, which omits the more fluctuating food and energy prices, saw a 0.3% rise for the month, just above the 0.2% projection. The annual core inflation rate stood at 3.2%, consistent with expectations.
Apple loses EU court battle over €13 billion tax bill in Ireland
Europe’s highest court ruled against Apple on Tuesday 10th September 2024, concluding a decade-long legal dispute over the company’s tax dealings in Ireland.
The case dates back to 2016, when the European Commission directed Ireland to reclaim up to 13 billion euros ($14.4 billion) in unpaid taxes from Apple.
The Commission had determined that Apple benefited from ‘illegal’ tax advantages in Ireland for twenty years.
UK economy flatlines for second month in a row
The UK’s economy did not experience growth in July 2024, continuing the stagnation from June 2024, as indicated by official data
Analysts had anticipated a modest growth of 0.2% for July. However, the Gross Domestic Product (GDP) fell short of the expectations set by economists surveyed by Reuters, who had predicted a 0.2% increase. Additionally, the country experienced no GDP growth in June 2024.
In July 2024, Britain’s predominant services sector experienced a slight increase of 0.1%, while production and construction outputs declined by 0.8% and 0.4%, respectively.
The UK’s economic growth rose by 0.5% in the three months leading up to July 2024, which was marginally below the expectations of economists and the 0.6% growth seen in the second quarter ending in June.
The services sector received a boost from a summer filled with sports events, including the Euros and the Olympics, despite the downturn in production and construction outputs.
The absence of growth for another month poses a significant challenge for the new Labour government, which has prioritised economic stimulation.
Despite no growth in July 2024, the Office for National Statistics (ONS) noted that the services sector showed strength over the last three months as a whole. Growth was primarily driven by computer programmers and the health sector, which bounced back from June’s strike action.
However, there was a decline in output from the advertising, architecture, and engineering sectors, according to the ONS. Car and machinery firms experienced a particularly challenging month.
While the ONS tracks gross domestic product (GDP) monthly, greater emphasis is placed on the three-month trend. Monthly figures, being preliminary estimates, are often subject to minor revisions as more data becomes available.
UK economy flatlines in July 2024
Rightmove rejects £5.6 billion takeover offer
The Australian property listing company REA Group announced on Wednesday that its £5.6 billion ($7.32 billion) cash-and-stock bid to take over Rightmove, Britain’s largest real estate portal, was rejected.
REA Group, which is 62% owned by Rupert Murdoch’s News Corp, reportedly did not provide a reason for Rightmove’s refusal of the offer.
Analysts have noted that Britain’s housing market is three times larger than Australia’s. A successful deal would have accelerated REA’s expansion into profitable international markets.
Google’s €2.4 billion fine upheld by EU court in antitrust probe
Europe’s top court upheld a €2.4 billion ($2.65 billion) fine against Google on Tuesday 10th September 2024 for unfairly promoting its shopping comparison service, exploiting its market dominance.
The ruling stems from a 2017 antitrust investigation by the European Commission, the executive arm of the European Union.
The Commission reportedly found that Google had unfairly favoured its own shopping comparison service, to the detriment of rival services.
Google’s advertising business goes on trial
The U.S. government is targeting the heart of Google’s vast wealth – its highly profitable monopolising advertising technology business
A trial scheduled to begin on Monday 9th September 2024 will scrutinise the Department of Justice’s (DoJ) claims that Alphabet, the parent company of Google, is unlawfully sustaining a monopoly in the marketplace.
In the previous year, the firm amassed over $200 billion (£152 billion) through the placement and sale of online advertisements.
Alphabet attributes its success to the ‘effectiveness’ of its business. Conversely, prosecutors contend that the company has leveraged its market control to stifle competition.
The legal action, launched by the Department of Justice (DoJ) and several states in 2023, charges Google with dominating the digital advertising market and employing its influence to obstruct innovation and competition.
Google asserts that it is simply one of numerous companies that arrange digital advertisement placements for consumers.
The corporation argues that the digital advertising industry is increasingly competitive, citing the growing advertising revenues of entities like Apple, Amazon, and TikTok as proof, as mentioned in a blog post responding to the DoJ’s lawsuit in 2023.
The contentions will be laid out before the U.S. District Judge who is expected to deliver a verdict.
This trial comes on the heels of a notable decision in a separate antitrust lawsuit against Google by the Justice Department last month. Judge Amit Mehta ruled that Google had illegally stifled competition in its online search services.
He reportedly stated that, “Google is a monopolist and has acted as such to maintain its monopoly.”
Alphabet one year chart
China’s exports up by 8.7% in August 2024
August 2024 saw China’s exports increase more than expected however, imports fell short of forecasts
Exports expanded by 8.7% in U.S. dollar terms compared to the previous year, while imports saw a marginal increase of 0.5%.
The export volume of China’s rare earths decreased by 1% from the previous year, imports experienced a more significant drop of 12%.
China’s exports to its major trading partners, the U.S., European Union and Association of Southeast Asian Nations all reportedly rose in August from a year ago.
Exports to the EU grew the most, up by 13% according to preliminary calculations.
China’s Consumer Price Index (CPI) climbs by 0.6% – less-than-expected
On Monday 9th September 2024, China announced that its consumer price index (CPI) increased by 0.6% year-on-year in August 2024, falling short of expectations and due mainly to decreasing costs in transportation, home goods, and rents.
The consumer price index was projected to rise by 0.7% year-on-year in August 2024, based on a poll. However, the producer price index experienced a decline of 1.8% year-on-year in August, exceeding the analysts’ forecast of a 1.4% decrease.
China’s inflation rate increased by 0.6% year-on-year, which was below the 0.7% economists had anticipated according to a Reuters poll. Month-on-month, the Consumer Price Index (CPI) saw a rise of 0.4%, also falling short of the expected 0.5%.
Does the stock market reflect the state of the U.S. economy?
The stock market is often seen as a barometer of economic health, but its relationship with the broader U.S. economy is more nuanced than it might appear.
Although there are links between the two, they do not always correlate. The intricacies of this relationship and its implications for investors and the general public are multifaceted.
The stock market – A snapshot of investor sentiment
The stock market is largely a reflection of investor sentiment and their expectations for future economic performance. When investors feel optimistic, stock prices generally increase. On the other hand, when they are pessimistic, stock prices are likely to decrease. Because the market is driven by sentiment, it can react to factors that don’t immediately affect the real economy, like geopolitical events, interest rate changes, or corporate earnings announcements.
Economic indicators: The real economy
The well-being of the U.S. economy is often assessed using various indicators such as Gross Domestic Product (GDP) growth, unemployment rates, consumer spending, and inflation. These metrics offer a broader perspective on the economic climate. For example, an expanding GDP coupled with low unemployment usually indicates a robust economy, despite any fluctuations in the stock market.
Divergence between the stock market and the economy
Occasionally, the stock market and the economy may move in different directions. For instance, during the COVID-19 pandemic, the stock market swiftly recovered from an initial downturn due to extraordinary fiscal and monetary stimulus measures. In contrast, the wider economy’s recovery was more protracted, marked by persistent high unemployment and substantial disruptions across numerous industries.
Likewise, the stock market might fall even amidst positive economic indicators. This occurs when investors foresee impending difficulties, such as possible increases in interest rates or geopolitical conflicts, that could affect corporate earnings.
Short-term vs. long-term perspectives
The stock market frequently responds to short-term factors and investor behaviours, such as speculation and market sentiment, leading to volatility that may not align with the underlying economic fundamentals. Conversely, economic indicators generally offer a more long-term perspective on the economy’s health.
The broader impact of the stock market
Although the stock market’s performance can influence the economy via wealth effects and corporate investments, it is not the only indicator of economic vitality. The performance of the stock market is significant to many U.S. citizens, especially those with investments through retirement plans.
However, the real economy, as measured by employment, production, and consumption, often has a more direct impact on people’s daily lives.
Conclusion
In conclusion, although the stock market is linked to the U.S. economy, they do not always move in tandem. The stock market reflects investor sentiment and anticipations for the future, yet it may not fully represent the present economic conditions.
Hence, for a thorough assessment of economic health, it is crucial to evaluate various economic indicators in addition to the performance of the stock market.
U.S. introduces new microchip-related export controls
The Biden administration is reportedly implementing new export controls on essential technologies, such as quantum computing and semiconductor materials, in response to China’s progress in the global chip market
These controls encompass quantum computers and their components, sophisticated chipmaking tools, semiconductor technologies, certain metal and metal alloy components and software, and high-bandwidth chips, which are vital for AI applications.
While the U.S. intensifies its measures to curb China’s expansion, there is noticeable hesitancy within the global industry.
The U.S. Department of Commerce issued new regulations on Friday, 6th September 2024, encompassing quantum computers and their components, sophisticated chipmaking tools, certain metal and metal alloy components and software, as well as high-bandwidth chips, which are vital for AI applications.
See report details here
Is the ‘eagerly anticipated’ Fed interest rate cut (due in September 2024) – too little too late?
Is the U.S. economy already weaker than the headline data suggests and should the U.S. Federal Reserve already be easing?
In the U.S. recent data (Friday 30th August 2024) showed the personal consumption expenditures (PCE) price index, the Federal Reserve’s favored measure of inflation, ticked up 0.2% last month, as expected. The data seems to back a smaller rate cut.
The question of whether the economy is weaker than headline data suggests and if the U.S. Federal Reserve should already be easing is complex.
The gross domestic product (GDP) increased at an annual rate of 3% in Q2 of 2024, which is a positive indicator. However, the U.S. current-account deficit widened, and personal income and outlays show mixed signals with a slight increase in personal income but a higher increase in personal outlays.
Inflation remains above the Federal Reserve’s 2% target but well below the pandemic-era peak. These factors suggest that while there are positive aspects to the U.S. economy, there are also challenges that may warrant caution from the Federal Reserve.
Is the market too focused on forecasting the size of any possible upcoming cut? “The question no one has asked yet is why is the policy rate is still at 5.5% when inflation is down to almost 2.5%? It would most likely be an error to do a ‘bigger’ rate cut in this kind of environment with all the uncertainty that the U.S. economy is facing.
Jobs data trends are also an important factor and play a major role in decision making. Company performance and future performance predictions are critical to help judge policy direction.
Decisions on monetary policy easing would be based on a comprehensive analysis of all economic indicators and trends.
If the FED go BIG on a rate cut some say it could be very dangerous and spook the markets.
Qualcomm intensifies competition with Intel and AMD and others as the company introduces its newest AI PC chip
Qualcomm has introduced the Snapdragon X Plus 8-core processor, intensifying its venture into the AI PC market and challenging competitors like Intel and AMD
The U.S. semiconductor powerhouse announced that the Snapdragon X Plus 8-core targets PCs priced from $700, aiming to broaden its chip reach to additional devices.
Moreover, Qualcomm has enjoyed backing from Microsoft, which is incorporating Snapdragon processors in its Copilot+ PCs.
Qualcomm says the company is also working on mixed reality smart glasses with Samsung and Google.
Burberry dropped from FTSE 100
The British luxury fashion house Burberry Group was relegated from the U.K.’s FTSE 100 on Wednesday 4th August 2024, amid declining sales and management upheavals, all adding to the challenges of the 168-year-old retailer
This demotion represents a new setback for Burberry, with its share price having plummeted over 53% this year.
Previous CEOs have endeavoured to refine the brand’s aesthetic. With the appointment of Joshua Schulman as the new chief executive in July 2024, a shift in strategy is now indicated.
Burberry is not alone in its waning fortunes. The luxury sector as a whole has suffered from a prolonged downturn in consumer spending amid inflationary pressures and broader economic uncertainty. Chinese luxury consumption has been especially hard hit.
In July, Hugo Boss cut its full-year guidance after reporting a fall in sales, notably in the U.K. and China, while Gucci owner Kering issued a weak forecast recognising a deceleration in China. LVMH revenue also fell in the second quarter on weaker sales.
Burberry’s FTSE relegation confirms a long fall from grace for the luxury fashion icon.
Biggest one-day market capitalisation drop for a U.S. stock in history, and guess what… it was Nvidia
Nvidia $279 billion market cap wipeout — the biggest in U.S. history for just ONE company
On Tuesday 3rd September 2024, around $279 billion of value was wiped off of Nvidia. That was the biggest one-day market capitalisation drop for a U.S. stock in HISTORY!
Nvidia one-day chart closed 108 on 3rd September 2024
Nvidia shares continued sliding in post-market trading Tuesday, falling 2%, after Bloomberg reported that the company received a subpoena from the Department of Justice as part of an antitrust investigation.
Global semiconductor stocks and related sectors subsequently experienced a decline on Wednesday 4th September 2024, after Nvidia’s share price in the U.S. saw a significant plunge overnight.
Update: in a subsequent statement Nvidia reportedly said it didn’t receive antitrust subpoena from DOJ. This according to a report on CNBC.
“Why fit in when you were born to stand out?” Dr. Seuss
Theodor Seuss Geisel 1904 – 1991 was an American children’s author and cartoonist. He is known for his work writing and illustrating more than 60 books under the pen name Dr. Seuss.
The September market crunch – markets up, markets down!
No surprise that the markets are taking a little breather then, after reaching and exceeding new highs in recent weeks.
The S&P 500 fell by a little over 2%, the Dow Jones Industrial Average trimmed around 1.50%, and the Nasdaq Composite dropped 3.26%.
A variety of factors likely contributed to the market’s weakness on Tuesday 3rd September 2024
U.S. manufacturing activity continued to contract in August 2024, raising concerns about the strength of the U.S. economy again.
Nvidia‘s stock plummeted nearly 10%. The downturn also affected other semiconductor manufacturers in the U.S. and Asia. Intel’s shares fell by 8.8%, SK Hynix’s by over 7%, and Tokyo Electron’s by over 8.5%.
Furthermore, Nvidia‘s shares declined an additional 2% in extended trading amid news that the U.S. Department of Justice has begun an antitrust investigation into the company.
This bleak sentiment may have been influenced by market expectations. The Fed dithering about when to make an interest rate cut isn’t helping.
Historically speaking, September has been the worst month for the S&P 500. The index lost an average of 2.3% over the past 10 Septembers, according to FactSet data.
There are real reasons to feel concerned for the month. Fundstrat co-founder Tom Lee warned investors to be cautious for the next eight weeks and thinks stocks could pull back by 7% to 10%.
S&P 500 one-day chart
Nasdaq Composite one-day chart
BYD sales hit record high in August 2024
In August 2024, Chinese electric car behemoth BYD set a new sales record for passenger vehicles, with hybrid models outpacing battery-only vehicles in growth.
Zeekr, supported by Geely, experienced a rise in deliveries to 18,015 for August, although this was a decrease from the 20206 deliveries reported in June 2024.
Li Auto, renowned for its range-extender vehicles, saw a decrease in deliveries to 48,122 in August, a drop from the July record of 51,000.
Black Myth Wukong – China’s first global gaming hit sells millions in a week
China’s inaugural venture into high-end video gaming has smashed global records, enhancing the industry’s international aspirations despite the gaming restrictions imposed by Beijing.
Black Myth: Wukong, an action-adventure game rooted in Chinese mythology, surpassed 10 million units sold just three days following its release on 20th August 2024. A week and a half later, it continued to hold the second spot in revenue rankings in the U.S., and remained the top-selling game worldwide, according to the Steam video game platform where it sells for around $60.
Hero Games co-published the game and was an early investor in its developer Game Science.
About the game
The game Black Myth: Wukong is an action RPG rooted in Chinese mythology. The story is based on Journey to the West, one of the Four Great Classical Novels of Chinese literature. You shall set out as the Destined One to venture into the challenges and marvels ahead, to uncover the obscured truth beneath the veil of a glorious legend from the past.
Euro zone inflation falls to 2.2% – a 3-year low
Inflation in the Euro zone decreased to a three-year low of 2.2% in August 2024, according to preliminary data from Eurostat released on Friday 30th August 2024
The core inflation rate, which excludes the volatile elements of energy, food, alcohol, and tobacco, dropped to 2.8% in August from July’s 2.9%, aligning with predictions.
Market expectations have fully incorporated a 0.25% rate cut by the ECB in September 2024, following its initial rate reduction in June 2024, with anticipation of an additional 0.25% reduction before year-end.
This follows a slowdown in price increases in Germany, the largest economy in the eurozone, which cooled to an unexpected 2% for the month, according to the index of consumer prices.
U.S. AI Safety Institute to evaluate OpenAI and Anthropic new AI models before release to the general public
On Thursday 29th August 2024, the U.S. AI Safety Institute announced a testing and evaluation agreement with OpenAI and Anthropic
This agreement reportedly grants the institute access to significant new AI models from each company before and after their public release.
Recently, several AI developers and researchers have voiced concerns regarding safety and ethics within the growing profit-driven AI industry.
Berkshire Hathaway at $1 trillion market cap – the first U.S. non tech company to do so
Warren Buffett’s Berkshire Hathaway achieved a $1 trillion market capitalisation on Wednesday 28th August 2024, becoming the first non-technology company in the U.S. to reach this business accolade.
The shares of the conglomerate, headquartered in Omaha, Nebraska, have surged over 28% in 2024, outperforming the S&P 500’s 18% increase. This major achievement came just two days before Buffett, often referred to as the ‘Oracle of Omaha,’ was due to celebrate his 94th birthday.
On Wednesday, the company’s shares rose by 0.8% to $696,502.02, surpassing the $1 trillion mark, as reported. The shares soared even further in the subsequent trading session.
One year chart for Berkshire Hathaway
The milestone serves as a testament to the firm’s financial robustness and the value of its franchise. It is particularly noteworthy given that Berkshire stands as one of the few remaining conglomerates today.
Buffett, serving as chairman and CEO, assumed command of Berkshire, a floundering textile enterprise, in the 1960s. He revolutionised the firm into a vast conglomerate covering insurance, railroads, retail, manufacturing, and energy sectors, boasting an unparalleled balance sheet and a formidable cash reserve.
Unlike the six other companies in the trillion-dollar club (Apple, Nvidia, Microsoft, Alphabet, Amazon and Meta), Berkshire is known for its old-economy focus as the owner of: BNSF Railway, Geico Insurance and Dairy Queen. (Although its sizable Apple position has helped drive recent gains.)
Nvidia reports 122% revenue growth
Nvidia has announced earnings surpassing Wall Street forecasts and has issued guidance for the current quarter that exceeds expectations.
As the artificial intelligence boom continues, Nvidia remains a major beneficiary. Despite a stock price dip, after trading hours, the stock has risen approximately 150% this year. The question remains whether Nvidia can sustain this growth trajectory.
Nvidia said it expects about $32.5 billion in current-quarter revenue, versus $31.7 billion expected by analysts, according to analysis That would be an increase of 80% from a year earlier.
Revenue continues to surge, rising 122% on an annual basis during the quarter, following three straight periods of year-on-year growth in excess of 200%.
Nvidia’s data centre business, which encompasses its AI processors, saw a 154% increase in revenue from the previous year, reaching $26.3 billion and representing 88% of the company’s total sales.
However, not all these sales were from AI chips. Nvidia reported that its networking products contributed $3.7 billion in revenue.
The company primarily serves a select group of cloud service providers and consumer internet firms, including Microsoft, Alphabet, Meta, and Tesla. Nvidia’s chips, notably the H100 and H200, are integral to the majority of generative AI applications, like OpenAI‘s ChatGPT.
Nvidia also announced a $50 billion stock buyback.
Nvidia shares dropped close to 5% in after-hours pre-market trade (29th August 2024).
Company says it can cut data centre energy use by 50% as AI boom places increased strain on power grids
Major technology corporations such as Microsoft, Alphabet, and Meta are channelling billions into data centre infrastructures to bolster generative AI, which is causing a spike in energy demand.
Sustainable Metal Cloud has announced that its immersion cooling technology is 28% less expensive to install compared to other liquid-based cooling methods and can cut energy use by up to 50%.
The surge in artificial intelligence has increased the need for more robust processors and the energy to cool data centres.
This presents an opportunity for Sustainable Metal Cloud, which runs ‘sustainable AI factories’ consisting of HyperCubes located in Singapore and Australia.
These HyperCubes house servers equipped with Nvidia processors immersed in a synthetic oil known as polyalphaolefin, which is more effective at dissipating heat than air. The company claims this technology can reduce energy consumption by as much as 50% when compared to the conventional air-cooling systems found in most data centres.
Additionally, the Singapore-based company states that its immersion cooling technology is more cost-effective to install by 28% than other liquid cooling options. The HyperCubes are modular and can be integrated into any data centre, utilising spaces that are currently unoccupied within existing facilities.
What is a Hypercube?
- Structure: A hypercube topology connects nodes in a way that each node is connected to others in a manner similar to the geometric hypercube. For example, in a 3-dimensional hypercube (a cube), each node is connected to three other nodes.
- Scalability: This structure allows for efficient scaling. As the number of dimensions increases, the number of nodes that can be connected grows exponentially.
- Fault Tolerance: Hypercube networks are known for their robustness. If one connection fails, there are multiple alternative paths for data to travel, ensuring reliability.
Benefits in data centres
- High Performance: The multiple pathways in a hypercube network reduce latency and increase data transfer speeds, which is crucial for big tech companies handling vast amounts of data.
- Efficient Resource Utilisation: The topology allows for better load balancing and resource allocation, optimising the performance of data centres.
- Flexibility: Hypercube networks can easily adapt to changes in the network, such as adding or removing nodes, without significant reconfiguration.
- Big Tech Companies: Companies like Google, Amazon, and Microsoft likely use hypercube topologies in their data centres to ensure high performance and reliability.
- High-Performance Computing (HPC): Hypercube networks are also used in supercomputers and other HPC environments where efficient data transfer is critical.
How frothy is the AI data centre market for investors?
Nvidia investors have been on a rocket ride to the stars. But recently they have come back down to Earth, and it has become more of a roller coaster ride.
Benefiting significantly from the artificial intelligence surge, Nvidia’s market cap has increased approximately ninefold since late 2022 – a massive market cap gain.
However, after achieving a peak in June 2024 and momentarily claiming the title of the world’s most valuable public company, Nvidia then experienced close to a 30% decline in value over the subsequent seven weeks, resulting in an approximate $800 billion loss in market capitalisation.
Currently, the stock is experiencing a rally, bringing it within approximately 6% of its all-time peak. The chipmaker surpassed the $3 trillion market cap milestone in early June 2024, aligning with Microsoft and Apple. The question remains whether the company can reclaim and sustain that title.
Investors are closely monitoring Nvidia’s forecast for the October quarter, with the company anticipated to report a growth of approximately 75%. Positive guidance would imply that Nvidia’s affluent clients continue to invest heavily in AI development, whereas a lacklustre forecast might suggest that infrastructure investment is becoming excessive.
Should there be any signs of diminishing demand for AI or if a major cloud customer is reducing spending, it could lead to a notable decline in revenue.
What evidence is there that the U.S. stock market is overvalued right now?
High Price-to-Earnings (P/E) ratio
The P/E ratio of the market is a common measure of valuation. Currently, the P/E ratio is significantly higher than historical averages, indicating that stocks are priced much higher relative to their earnings.
Rapid price increases without corresponding earnings growth
When stock prices rise rapidly without a corresponding increase in earnings, it often signals overvaluation. This has been observed recently, especially with some of the major tech stocks.
Comparison to historical market tops
The current market valuations are almost as high as they were at the peak in January 2022, which was followed by a significant correction.
Buffet valuation metric
Metrics like the Buffett Indicator (market capitalisation to GDP ratio) and Tobin’s Q (market value of assets divided by replacement cost) also suggest that the market is overvalued.
While these indicators point towards overvaluation, it’s important to note that markets can remain overvalued for extended periods, and other factors like strong earnings growth can sustain high valuations for some time
U.S. stock market could be overvalued by as much as 68%
The U.S. stock market, according to some analysts suggests that the current market appears to be overvalued by around 68%.
By comparison, at the peak of the Dot-com bubble, on 24th March 2000, the market was 89.5% overvalued. When the market bottomed out 2.5 years later, it had dropped around 50% from its previous all-time high and was undervalued by nearly 21%.
The fact that the market currently appears overvalued does not necessarily mean it will correct any time soon. The forces pulling the market toward the long-run equilibrium are relatively weak and allow the market to stay over or undervalued for extended periods of time.
From 1954 to 1970, the market stayed continuously overvalued for over some 15 years, and from 1973 until 1987, it stayed undervalued for about 14 years.
The analysis clearly suggests that U.S. stocks are overvalued – but that doesn’t necessarily mean a downturn any time soon – but it will, in time, adjust.