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Behold the “Scariest Chart” for the Stock Market

Aug 09, 2018 | Sue Chang |

Behold the “Scariest Chart” for the Stock Market

Written by Sue Chang via MarketWatch

By one measure, the stock market’s valuation is twice as high as 2000

A lot has changed since the stock market crash of 2000. Apple Inc. has gone from being just another computer brand to becoming the most valuable company in the world, Amazon.com Inc. went from being an e-book retailer to a byword for online shopping and Tesla’s Elon Musk has risen from obscurity to Twitter stardom.

Yet some things never change and Doug Ramsey, chief investment officer at Leuthold Group, has been on a mini-campaign highlighting the parallels between 2000 and 2018.

Among the numerous similarities is the elevated valuation of the S&P 500 then and now, which Ramsey illustrates in a chart that he has dubbed as the “scariest chart in our database.”

“Recall that the initial visit to present levels was followed by the S&P 500’s first-ever negative total return decade,” he said in a recent blog post.

Price-to-sales ratio is one measure of a stock’s value. It isn’t as popular as the price-to-earnings ratio, or P/E, but is viewed as less susceptible to manipulation since it is based on revenue.

He also shared a chart which he claims is “unfit for a family-friendly publication” that shows how in terms of median price to sales ratio, the S&P 500 is twice as expensive as it was in 2000.

“Overvaluation in 2000 was highly concentrated; today it is pervasive, with the median S&P 500 Price/Sales ratio of 2.63 times more than double the 1.23 times prevailing in February 2000.

Read the rest of the article on MarketWatch: Behold the “Scariest Chart” for the Stock Market | MarketWatch