|<Image Credit : Barron.com>|
I think it is time for me to update the world major stock market’s valuation by “ Regression to the Mean ” after DJ exceeded 21,000 mark in such a short period after hitting 20K level.
Always remembered that “ Reversion to mean “ is just a “statistical phenomena “ and it may take much longer time to “reverting to mean” if market is in bubble or irrational stage.
As renowned economist John Maynard Keynes famously commented, “The market can stay irrational longer than you can stay solvent.”
Please find the link to my previous blog post about this topic (here ) " Regression Line For Major Stock Market Indexes."
“When US (market) sneezes, the world (market) catches a cold !! “ . Some may argue that there is a tendency and increasing of divergence between developed and emerging market , but with such an intertwined world economy and huge movement / flow of fund within a click , the high correlation of market movement when we are in panic and distress situation shall prevail.
Well, nobody really know if Dow Jones would shoot up to 30,000 in near term but one will really need to always set aside some “war-chest “ and get ready to take advantage if market’s mood suddenly change and swing from extreme optimism to pessimism.
Base on valuation by “ Linear Regression “ ,the STI and Hang Seng are at about "long term mean level" with exception to Japan’s Nikkei which is on the other direction of well above the mean level ( crossing +2SD level ) . It might be due to extremely loose “ monetary policy “ and Government’s fund in buying up the Index ETF .
Below article from Bloomberg clearly explained how BOC’s action in ETF buying program affecting the Japan's Nikkei Index :
here ) (
(BOJ set to become top owner of 55 firms in the Nikkei 225)
On the other hand , US and European market seems at high side except FTSE100, with S&P , DJ and NASDAQ closed above +1SD level ( where NASDAQ is approaching +2SD level)
Is the Stock Market ( US ) Cheap?
From ( Advisor Perspective : Article contributed by Jill Mislinski ) :
The Valuation Thesis
A standard way to investigate market valuation is to study the historic Price-to-Earnings (P/E) ratio using reported earnings for the trailing twelve months (TTM). Proponents of this approach ignore forward estimates because they are often based on wishful thinking, erroneous assumptions, and analyst bias
Here is the latest update of a popular market valuation method using the most recent Standard & Poor's "as reported" earnings and earnings estimates and the index monthly average of daily closes for the past month. For the earnings, see the table below created from Standard & Poor's latest earnings spreadsheet.
- TTM P/E ratio = 23.8
- P/E10 ratio = 29.0
< Concept explained : from Advisor Perspective :
TTM P/E Ratio
The P/E10 Ratio
“Relative to the mean, the market remains quite expensive, with the ratio approximately 73% above its arithmetic mean and 87% above its geometric mean.” Write the author.
At the end of his message , Jill Mislinski posted below remark :
The Prevailing Question...
You may read the full article ( here ).
Some Market analyst or expert are quick to call for Dow 30,000 !! or even 50,000 !!!
1) Next Stop, Dow 30,000 from Baron.com ( here )
2) Wall Street Legend Predicts “DOW 50,000!” (here )
What do you think on the current market valuation of major indexes ? Are you fully invested in equity or having some “war-chest “ ready to pick up any stocks in case market goes south . Which camp are in : “optimism or pessimism “ ?
“Wouldn't economics make a lot more sense if it were based on how people actually behave, instead of how they should behave?”
― Dan Ariely,
― Dan Ariely,
Append below the Regression Line for major stock markets around the world :