Over the years I've occasionally glanced at Vanguard's cyclically adjusted price/earnings ratio graph. The first half of 2020 was probably the last time I looked. It appears the recent model dip amounts to the largest move down for their estimate of fair value across my experience. I suppose current opinions may vary depending on net buying and selling of U.S. stocks, thoughts about the model, or bullishness and bearishness. I suppose one way to justify my current buying plan might amount to reversal of the model towards where it stood leading into 2020.
viewtopic.php?p=7748257#p7748257...Vanguard’s own internal models show that stocks are about 30% overvalued at the moment, [Roger Aliaga-Diaz] says a measure called dispersion shows that individual stocks aren’t more out of whack than they have been historically.
U.S. equity prices have climbed to new highs even as the transition to a higher-interest-rate environment has depressed our estimate of where fair value lies. The widening gap between equity prices and our assessment leaves the U.S. equity valuation about 30% above our estimated range of its fair value.
For context, U.S. stock valuations have rarely been this high. Their valuation today is at the 99th percentile, a level paralleled since 1950 only by the dot-com bubble and the post-COVID reopening
A declining fair-value CAPE suggests that higher equity-risk premium (ERP) compensation is required,
https://corporate.vanguard.com/content/ ... tions.html...we would not encourage investors to make drastic changes to their asset allocation.
Statistics: Posted by alluringreality — Tue Mar 05, 2024 3:06 am — Replies 3 — Views 417