US CAPE and q chart

US CAPE and q chart for Q3 2016.

With the publication of the Z1 data up to 30th Sep, 2016 (on 8th December, 2016) I have updated my calculations for q and CAPE. I have also added quarterly as well as annual estimates for both.

Both q and CAPE include data for the quarter to 30th September, 2016. At that date the S&P 500 was at 2168.27 and US non-financials were overvalued by 56% according to q and quoted shares, including financials, were overvalued by 90% according to CAPE. (It should be noted that I use geometric rather than arithmetic means in these calculations.)

As at 2nd January, 2017 with the S&P 500 at 2238.83, the overvaluation by the relevant measures was 61% for non-financials and 96% for quoted shares.

Although the overvaluation of the stock market is well short of the extremes reached at the year ends of 1929 and 1999, it is near its other previous peaks of 1905, 1936 and 1968, though as q has become less exalted than CAPE, it shows that US equities are now less overvalued than they were at these previous peaks.

The degree of overvaluation shown by q has fallen relative to CAPE by approximately 15% since 2010. The main factor in this appears to have been the rise in the value of real estate, which accounted for 56% of net worth in Q3 2016 compared with 46% in Q1 2010. The present level is, however, below the mean of 59% of net worth shown since the start of the quarterly Z1 data in Q1 1952.

Data for my calculations of q are taken for 1900 to 1952 from Measures of Stock Market Value and Returns for the Non-financial Corporate Sector 1900 – 2002 by Stephen Wright, published in the Review of Income and Wealth (2004) and for 1952 to Q3 2016 from the Financial Accounts of the United States (“Z1”) published by the Federal Reserve. Data for our calculations of CAPE are taken from the data published on Robert Shiller’s website, updated from data published by Standard & Poor’s and the BLS. I have estimated the quarterly values for q from 1900 to 1952 by interpolating the year end values estimated by Stephen Wright for net worth and adjusting these for changes in the S&P 500.

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