Stock Market Briefing: Valuation Ratios Using Market Capitalization
Yardeni Research, Inc.
October 1, 2021
Dr. Edward Yardeni 516-972-7683 [email protected]
Joe Abbott 732-497-5306 [email protected]
Mali Quintana 480-664-1333 [email protected]
Please visit our sites at www.yardeni.com blog.yardeni.com
thinking outside the box Table Of Contents TableTable OfOf ContentsContents
Capitalization Ratios 1-5 Buffett Ratio 6
October 1, 2021 / Valuation Ratios Using Market Capitalization Yardeni Research, Inc. www.yardeni.com Capitalization Ratios Figure 1. 80.1 Q2 80.1 60.1 TOTAL VALUE OF US STOCKS 60.1 (trillion dollars, nsa, ratio scale) 40.1 Sep 40.1
20.1 20.1 US Equity Issues at Market Value Total (75.4) Total Ex Foreign Issues* (63.7) S&P 500 Market Cap** (36.5)
yardeni.com .1 .1 52 54 56 58 60 62 64 66 68 70 72 74 76 78 80 82 84 86 88 90 92 94 96 98 00 02 04 06 08 10 12 14 16 18 20 22 24
* Total excluding market value of holdings of foreign corporate equities, investment fund shares, and American Depositary Receipts (ADRs) by US residents. ** Quarterly from Q1-1964 through Q4-1989, and then monthly from January 1990. Source: Federal Reserve Board, Financial Accounts of the United States.
Figure 2. 25 25 FOREIGN EQUITIES HELD BY US RESIDENTS (as percent of total market value of equities held by US residents)
20 20
Foreign Equities Q2 15 Share in US* (15.5) 15
10 yardeni.com 10
5 5
0 0 52 54 56 58 60 62 64 66 68 70 72 74 76 78 80 82 84 86 88 90 92 94 96 98 00 02 04 06 08 10 12 14 16 18 20 22 24
* Market value of holdings of foreign corporate equities, investment fund shares, and American Depositary Receipts (ADRs) by US residents as a percent of the market value of their total equity holdings. Source: Federal Reserve Board, Financial Accounts of the United States.
Page 1 / October 1, 2021 / Valuation Ratios Using Market Capitalization Yardeni Research, Inc. www.yardeni.com Capitalization Ratios Figure 3. 40 40 RATIO MARKET VALUE US EQUITIES EX FOREIGN ISSUES* TO AFTER-TAX CORPORATE PROFITS
30 30
Using After-Tax Profits Q2 As Reported to IRS (23.7)
20 Based on Current Production** (26.1) 20
10 10
yardeni.com 0 0 52 54 56 58 60 62 64 66 68 70 72 74 76 78 80 82 84 86 88 90 92 94 96 98 00 02 04 06 08 10 12 14 16 18 20 22 24
* Total excluding market value of holdings of foreign corporate equities, investment fund shares, and American Depositary Receipts (ADRs) by US residents. ** Including Inventory Valuation Adjustment (IVA) and Capital Consumption Adjustment (CCAdj), which restate the historical cost basis used in profits tax accounting for inventory withdrawals and depreciation to the current cost measures used in GDP. Note: Shaded red areas denote S&P 500 bear market declines of 20% or more. Yellow areas show bull markets. Source: Federal Reserve Board. Figure 4. 4.5 4.5 TOBIN’S q FOR NONFINANCIAL CORPORATIONS (ratio) 4.0 4.0
3.5 3.5
3.0 3.0 Actual q* Adjusted q** 2.5 Q2 2.5
2.0 2.0 Q2 1.5 1.5
1.0 1.0
.5 .5
yardeni.com .0 .0 52 54 56 58 60 62 64 66 68 70 72 74 76 78 80 82 84 86 88 90 92 94 96 98 00 02 04 06 08 10 12 14 16 18 20 22 24 26
* Ratio of the market value of equities to the net worth of corporations including real estate and structures at market value and equipment, intellectual property products, and inventories at replacement cost. ** Actual divided by average since 1952. Note: Shaded red areas denote S&P 500 bear market declines of 20% or more. Yellow areas show bull markets. Source: Flow of Funds.
Page 2 / October 1, 2021 / Valuation Ratios Using Market Capitalization Yardeni Research, Inc. www.yardeni.com Capitalization Ratios Figure 5. 3.75 3.75
3.50 STOCK MARKET CAPITALIZATION RATIOS 3.50 (quarterly) 3.25 3.25
3.00 3.00
2.75 S&P 500 Market Cap Q2 2.75 (as a ratio of S&P 500 Revenues) (2.8) 2.50 US Equity Market Capitalization Ex Foreign Issues* 2.50 (as a ratio of nominal GNP) (2.8) 2.25 2.25
2.00 2.00
1.75 1.75
1.50 1.50
1.25 1.25
1.00 1.00
.75 .75
.50 .50
.25 .25 yardeni.com .00 .00 52 54 56 58 60 62 64 66 68 70 72 74 76 78 80 82 84 86 88 90 92 94 96 98 00 02 04 06 08 10 12 14 16 18 20 22 24
* Total excluding market value of holdings by US residents of foreign corporate equities, investment fund shares, and ADRs. Note: Shaded red areas are S&P 500 bear market declines of 20% or more. Yellow areas are bull markets. Source: Federal Reserve Board, Bureau of Economic Analysis, and Standard & Poor’s.
Figure 6. 3.75 3.75 STOCK MARKET CAPITALIZATION RATIOS 3.50 3.50
3.25 S&P 500 Market Cap 3.25 (as a ratio of S&P 500 Revenues) (2.75) 3.00 US Equity Market Capitalization Ex Foreign Issues* 3.00 (as a ratio of nominal GNP) (2.77) 2.75 Q2 2.75
2.50 2.50
2.25 2.25
2.00 2.00
1.75 1.75
1.50 1.50
1.25 1.25
1.00 1.00
.75 .75 yardeni.com .50 .50 93 94 95 96 97 98 99 00 01 02 03 04 05 06 07 08 09 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24
* Total excluding market value of holdings of foreign corporate equities, investment fund shares, and American Depositary Receipts (ADRs) by US residents. Note: Shaded red areas are S&P 500 bear market declines of 20% or more. Yellow areas are bull markets. Source: Federal Reserve Board, Flow of Funds Accounts, Bureau of Economic Analysis, and Standard & Poor’s.
Page 3 / October 1, 2021 / Valuation Ratios Using Market Capitalization Yardeni Research, Inc. www.yardeni.com Capitalization Ratios Figure 7. 3.75 3.75 S&P 500 PRICE-TO-SALES RATIO 3.50 3.50 S&P 500 Market Cap 3.25 (as a ratio of S&P 500 Revenues (2.75) 3.25 Forward P/S* (2.78) 3.00 3.00
2.75 Sep 2.75
2.50 2.50
2.25 2.25
2.00 2.00
1.75 1.75
1.50 1.50
1.25 1.25
1.00 1.00 yardeni.com .75 .75 93 94 95 96 97 98 99 00 01 02 03 04 05 06 07 08 09 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24
* S&P 500 index divided by 12-month forward consensus expected revenues per share for S&P 500. Note: Shaded red areas are S&P 500 bear market declines of 20% or more. Yellow areas are bull markets. Source: I/B/E/S data by Refinitiv and Standard & Poor’s.
Figure 8. 3.00 3.00 STOCK MARKET CAPITALIZATION RATIO vs S&P 500 PRICE-TO-SALES-RATIO Q2 2.75 9/23 2.75 US Equity Market Capitalization 2.50 Ex Foreign Issues* 2.50 (as a ratio of nominal GNP) 2.25 Forward P/S** 2.25
2.00 2.00
1.75 1.75
1.50 1.50
1.25 1.25
1.00 1.00
.75 .75
yardeni.com .50 .50 93 94 95 96 97 98 99 00 01 02 03 04 05 06 07 08 09 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24
* Total excluding market value of holdings by US residents of foreign corporate equities, investment fund shares, and ADRs. ** S&P 500 index divided by S&P 500 year-ahead forward analysts’ consensus expected revenues per share. Monthly through 2005, then weekly. Note: Shaded red areas are S&P 500 bear market declines of 20% or more. Yellow areas are bull markets. Source: Federal Reserve Board, Bureau of Economic Analysis, and Standard & Poor’s.
Page 4 / October 1, 2021 / Valuation Ratios Using Market Capitalization Yardeni Research, Inc. www.yardeni.com Capitalization Ratios Figure 9. 24 3.0
23 S&P 500 VALUATION MEASURES 2.8 9/23 22 2.6 21 Forward P/E* (20.7) 2.4 20
19 2.2 Forward P/S** (2.7) 18 2.0 17 1.8 16 1.6 15
14 1.4
13 1.2 12 1.0 11 .8 10 yardeni.com 9 .6 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 2021 2022 2023 2024
* Price divided by forward consensus expected operating earnings per share. Monthly through 2005, then weekly. ** Price divided by forward consensus expected sales per share. Monthly through 2005, then weekly. Note: Shaded red areas are S&P 500 bear market declines of 20% or more. Yellow areas are bull markets. Source: I/B/E/S data by Refinitiv.
Figure 10. 3.75 3.75 STOCK MARKET CAPITALIZATION RATIO & PRICE-TO-SALES-RATIO 3.50 3.50
3.25 3.25
3.00 S&P 500 Market Cap 3.00 (as a ratio of S&P 500 Revenues) (2.75) 2.75 Forward P/S* (2.72) Q29/23 2.75
2.50 2.50
2.25 2.25
2.00 2.00
1.75 1.75
1.50 1.50
1.25 1.25
1.00 1.00
.75 .75 yardeni.com .50 .50 93 94 95 96 97 98 99 00 01 02 03 04 05 06 07 08 09 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24
* S&P 500 index divided by forward consensus expected revenues per share for S&P 500. Monthly through 2005, then weekly. Note: Shaded red areas are S&P 500 bear market declines of 20% or more. Yellow areas are bull markets. Source: I/B/E/S data by Refinitiv and Standard & Poor’s.
Page 5 / October 1, 2021 / Valuation Ratios Using Market Capitalization Yardeni Research, Inc. www.yardeni.com Buffett Ratio Figure 11. 3.75 3.75 3.50 STOCK MARKET VALUATION RATIOS 3.50 3.25 3.25 S&P 500 Market Cap 3.00 (as a ratio of S&P 500 Revenues) (2.8) 3.00 2.75 US Equity Market Capitalization Ex Foreign Issues* Q2 2.75 2.50 (as a ratio of nominal GNP) (2.8) 2.50 2.25 2.25 2.00 2.00 1.75 1.75 1.50 1.50 1.25 1.25 1.00 1.00 .75 .75 .50 .50 93 94 95 96 97 98 99 00 01 02 03 04 05 06 07 08 09 10 11 12 13 14 15 16 17 18 19 20 21 22
3.75 3.75 3.50 3.50 3.25 3.25 3.00 3.00 S&P 500 Market Cap 2.75 (as a ratio of S&P 500 Revenues) (2.8) Q210/1 2.75 2.50 Forward P/S** (2.7) 2.50 2.25 2.25 2.00 2.00 1.75 1.75 1.50 1.50 1.25 1.25 1.00 1.00 .75 .75 .50 .50 93 94 95 96 97 98 99 00 01 02 03 04 05 06 07 08 09 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24
27 3.0 2.9 2.8 25 10/1 2.7 2.6 23 2.5 2.4 Forward P/E** (20.5) 2.3 21 2.2 2.1 Forward P/S** (2.7) 19 2.0 1.9 1.8 17 1.7 1.6 15 1.5 1.4 1.3 13 1.2 1.1 11 1.0 .9 yardeni.com .8 9 .7 93 94 95 96 97 98 99 00 01 02 03 04 05 06 07 08 09 10 11 12 13 14 15 16 17 18 19 20 21 22 * Total excluding market value of holdings by US residents of foreign corporate quities, investment fund shares, and ADRs. ** S&P 500 index divided by forward consensus expected revenues or earnings per share for S&P 500. Monthly through 2005, then daily. Note: Shaded red areas are S&P 500 bear market declines of 20% or more. Yellow areas are bull markets.
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