Best of the Week
Most Popular
1. Stock Markets and the History Chart of the End of the World (With Presidential Cycles) - 28th Aug 20
2.Google, Apple, Amazon, Facebook... AI Tech Stocks Buying Levels and Valuations Q3 2020 - 31st Aug 20
3.The Inflation Mega-trend is Going Hyper! - 11th Sep 20
4.Is this the End of Capitalism? - 13th Sep 20
5.What's Driving Gold, Silver and What's Next? - 3rd Sep 20
6.QE4EVER! - 9th Sep 20
7.Gold Price Trend Forecast Analysis - Part1 - 7th Sep 20
8.The Fed May “Cause” The Next Stock Market Crash - 3rd Sep 20
9.Bitcoin Price Crash - You Will be Suprised What Happens Next - 7th Sep 20
10.NVIDIA Stock Price Soars on RTX 3000 Cornering the GPU Market for next 2 years! - 3rd Sep 20
Last 7 days
Gold Price Setting Up Just Like Before COVID-19 Breakdown – Get Ready! - 27th Sep 20
UK Coronavirus 2nd Wave SuperMarkets Panic Buying 2.0 Toilet Paper , Hand Sanitisers, Wipes... - 27th Sep 20
Gold, Dollar and Rates: A Correlated Story - 27th Sep 20
WARNING RTX 3080 AIB FLAWED Card's, Cheap Capacitor Arrays Prone to Failing Under Load! - 27th Sep 20
Boris Johnson Hits Coronavirus Panic Button Again, UK Accelerting Covid-19 Second Wave - 25th Sep 20
Precious Metals Trading Range Doing It’s Job to Confound Bulls and Bears Alike - 25th Sep 20
Gold and Silver Are Still Locked and Loaded… Don't be Out of Ammo - 25th Sep 20
Throwing the golden baby out with the covid bath water - Gold Wins - 25th Sep 20
A Look at the Perilous Psychology of Financial Market Bubbles - 25th Sep 20
Corona Strikes Back In Europe. Will It Boost Gold? - 25th Sep 20
How to Boost the Value of Your Home - 25th Sep 20
Key Time For Stock Markets: Bears Step Up or V-Shaped Bounce - 24th Sep 20
Five ways to recover the day after a good workout - 24th Sep 20
Global Stock Markets Break Hard To The Downside – Watch Support Levels - 23rd Sep 20
Beware of These Faulty “Inflation Protected” Investments - 23rd Sep 20
What’s Behind Dollar USDX Breakout? - 23rd Sep 20
Still More Room To Stock Market Downside In The Coming Weeks - 23rd Sep 20
Platinum And Palladium Set To Surge As Gold Breaks Higher - 23rd Sep 20
Key Gold Ratios to Other Markets - 23rd Sep 20
Watch Before Upgrading / Buying RTX 3000, RDNA2 - CPU vs GPU Bottlenecks - 23rd Sep 20
Online Elliott Wave Markets Trading Course Worth $129 for FREE! - 22nd Sep 20
Gold Price Overboughtness Risk - 22nd Sep 20
Central Banking Cartel Promises ZIRP Until at Least 2023 - 22nd Sep 20
Stock Market Correction Approaching Initial Objective - 22nd Sep 20
Silver Bulls Will Be Handsomely Rewarded - 21st Sep 20
Fed Will Not Hike Rates For Years. Gold Should Like It - 21st Sep 20
US Financial Market Forecasts and Elliott Wave Analysis Resources - 21st Sep 20
How to Avoid Currency Exchange Risk during COVID - 21st Sep 20
Crude Oil – A Slight Move Higher Has Not Reversed The Bearish Trend - 20th Sep 20
Do This Instead Of Trying To Find The “Next Amazon” - 20th Sep 20
5 Significant Benefits of the MT4 Trading Platform for Forex Traders - 20th Sep 20
A Warning of Economic Collapse - 20th Sep 20
The Connection Between Stocks and the Economy is not What Most Investors Think - 19th Sep 20
A Virus So Deadly, The Government Has to Test You to See If You Have It - 19th Sep 20
Will Lagarde and Mnuchin Push Gold Higher? - 19th Sep 20
RTX 3080 Mania, Ebay Scalpers Crazy Prices £62,000 Trollers Insane Bids for a £649 GPU! - 19th Sep 20
A Greater Economic Depression For The 21st Century - 19th Sep 20
The United Floor in Stocks - 19th Sep 20
Mobile Gaming Market Trends And The Expected Future Developments - 19th Sep 20
The S&P 500 appears ready to correct, and that is a good thing - 18th Sep 20
It’s Go Time for Gold Price! Next Stop $2,250 - 18th Sep 20
Forget AMD RDNA2 and Buy Nvidia RTX 3080 FE GPU's NOW Before Price - 18th Sep 20
Best Back to School / University Black Face Masks Quick and Easy from Amazon - 18th Sep 20
3 Types of Loans to Buy an Existing Business - 18th Sep 20
How to tell Budgie Gender, Male or Female Sex for Young and Mature Parakeets - 18th Sep 20
Fasten Your Seatbelts Stock Market Make Or Break – Big Trends Ahead - 17th Sep 20
Peak Financialism And Post-Capitalist Economics - 17th Sep 20
Challenges of Working from Home - 17th Sep 20
Sheffield Heading for Coronavirus Lockdown as Covid Deaths Pass 432 - 17th Sep 20
What Does this Valuable Gold Miners Indicator Say Now? - 16th Sep 20
President Trump and Crimes Against Humanity - 16th Sep 20
Slow Economic Recovery from CoronaVirus Unlikely to Impede Strong Demand for Metals - 16th Sep 20
Why the Knives Are Out for Trump’s Fed Critic Judy Shelton - 16th Sep 20
Operation Moonshot: Get Ready for Millions of New COVAIDS Positives in the UK! - 16th Sep 20
Stock Market Approaching Correction Objective - 15th Sep 20
Look at This Big Reminder of Stock Market Mania - 15th Sep 20
Three Key Principles for Successful Disruption Investors - 15th Sep 20
Billionaire Hedge Fund Manager Warns of 10% Inflation - 15th Sep 20
Gold Price Reaches $2,000 Amid Dollar Depreciation - 15th Sep 20
GLD, IAU Big Gold ETF Buying MIA - 14th Sep 20
Why Bill Gates Is Betting Millions on Synthetic Biology - 14th Sep 20
Stock Market SPY Expectations For The Rest Of September - 14th Sep 20
Gold Price Gann Angle Update - 14th Sep 20
Stock Market Recovery from the Sharp Correction Goes On - 14th Sep 20
Is this the End of Capitalism? - 13th Sep 20
The Silver Big Prize - 13th Sep 20
U.S. Shares Plunged. Is Gold Next? - 13th Sep 20
Why Are 7,500 Oil Barrels Floating on this London Lake? - 13th Sep 20
Sheffield 432 Covid-19 Deaths, Last City Centre Shop Before Next Lockdown - 13th Sep 20
Biden or Trump Will Keep The Money Spigots Open - 13th Sep 20
Gold And Silver Up, Down, Sideways, Up - 13th Sep 20

Market Oracle FREE Newsletter

How to Get Rich Investing in Stocks by Riding the Electron Wave

Here's How You Figure Out Where the Stock Market Is Headed Next

Stock-Markets / Stock Markets 2010 Jun 06, 2010 - 07:03 AM GMT

By: DailyWealth


Best Financial Markets Analysis ArticleDan Ferris wites: If you want to get an idea of where the overall stock market is likely headed in the next few years, just take a step back and think about Mr. Market's wild mood swings of the past few years...

After a three-year depression lifted in late 2002, Mr. Market became irrationally exuberant all over again. By late 2007, the S&P 500 hit a new all-time high. Stocks were king. Nobody thought about risk.

About a year later, risk was all anyone could think about. The market fell more than 50% from its late 2007 highs. That was the worst year since the Great Depression. Mr. Market continued to sink into an ever deeper funk as the market bottomed in March 2009.

From that point on, Mr. Market went back on the happy pills. He became more wildly manic than he's been in decades. At recent levels, the S&P 500 is up roughly 60% off its bottom.

Where are we now? The question is rarely this easy to answer.

The stock market is clearly overvalued by the three measures that count: price-to-earnings ratios, dividend yields, and the value of stocks relative to the whole economy. Let me show you...

The Wilshire 5000 Index covers all U.S. stocks from ExxonMobil down to those of less than $1 million in market cap. These stocks trade for around 23.4 times earnings. That's expensive. Flip that number upside down, and you get the "earnings yield" of the market. At 23.4 times earnings Mr. Market is offering you a 4.27% return on your money. That's not nearly enough. Inflation will destroy that return in the next few years.

The second important valuation measure of stocks is cash dividend yield. The yield on stocks right now is about 1.75%. At that rate, it'll take about 57 years to double your money. I'm 48 years old. I don't have 57 years to double my money. Dividend yields aren't in Extreme Value territory until they hit about 5% for the overall market.

Finally, U.S. stocks are currently valued at just about as much as the entire U.S. economy. The latest gross domestic product figure published by the Bureau of Economic Analysis is $14.6 trillion. The entire market capitalization of U.S. stocks is right around $14.5 trillion. Historically, the market has been overvalued above roughly 80% of GDP. Today, at close to 100%, the stock market is getting ridiculously overvalued. Mr. Market doesn't seem to understand there's a little more to the U.S. economy than 5,000 publicly traded companies.

I don't waste time predicting the short-term direction of the market. I only assess valuations and make a judgment based on how cheap or dear the market appears to be.

Stocks are pieces of businesses, and Mr. Market is asking too much for most businesses these days. Either the businesses rapidly grow in value, or the market corrects. It's not hard to believe a market correction is more likely than ubiquitous hypergrowth.

Moments like right now are when a compulsion to buy stocks will serve you worst. Don't buy any stock that isn't financially strong and demonstrably cheap.

For example, I love the idea of buying a cash-gushing, World Dominating franchise like Microsoft for around 10 times cash flow... or paying well under 10 times cash flow for ExxonMobil, the world's best-managed big oil company. I can't stand the idea of paying 15 or 20 times cash flow for your average retail, homebuilder, or tech stock.

Microsoft and ExxonMobil are both dirt cheap right now... and I'm willing to bet they'll be dominating their industries and treating shareholders right five, 10, probably 20 years from now. I can't say the same about the vast majority of the overpriced Wilshire 5000.

If you're like me – concerned about the overpriced market, concerned about another leg down in the housing market, and skeptical of Washington D.C.'s plan to borrow and spend our way out of debt – World Dominating companies are where you want your stock portfolio to be.

Good investing,

Dan Ferris
P.S. As I said, right now, you to want to be extremely selective about what kind of businesses you will buy... and extremely stingy on what price you'll pay to own them. I have a list of eight recommended World Dominators. Five are in buy range right now. These are the world's greatest businesses selling at absurdly cheap prices. To learn how to get immediate access to this list, click here.

The DailyWealth Investment Philosophy: In a nutshell, my investment philosophy is this: Buy things of extraordinary value at a time when nobody else wants them. Then sell when people are willing to pay any price. You see, at DailyWealth, we believe most investors take way too much risk. Our mission is to show you how to avoid risky investments, and how to avoid what the average investor is doing. I believe that you can make a lot of money – and do it safely – by simply doing the opposite of what is most popular.

Customer Service: 1-888-261-2693 – Copyright 2010 Stansberry & Associates Investment Research. All Rights Reserved. Protected by copyright laws of the United States and international treaties. This e-letter may only be used pursuant to the subscription agreement and any reproduction, copying, or redistribution (electronic or otherwise, including on the world wide web), in whole or in part, is strictly prohibited without the express written permission of Stansberry & Associates Investment Research, LLC. 1217 Saint Paul Street, Baltimore MD 21202

Disclaimer: The above is a matter of opinion provided for general information purposes only and is not intended as investment advice. Information and analysis above are derived from sources and utilising methods believed to be reliable, but we cannot accept responsibility for any losses you may incur as a result of this analysis. Individuals should consult with their personal financial advisors.

Daily Wealth Archive

© 2005-2019 - The Market Oracle is a FREE Daily Financial Markets Analysis & Forecasting online publication.

Post Comment

Only logged in users are allowed to post comments. Register/ Log in

6 Critical Money Making Rules