We have written articles about the general market valuations when Dow was at
9,000, and
8,000. Using
Warren Buffett’s stock market matrix, we also developed
a page calculating the expected return from the market for the coming years. Now Dow is hovering around 10,000. We would like review again where we are with market valuations, and what we can expect from the market over the next decade.
When Dow was around 8,000 back in February, we concluded that investors could expect more than 10% a year for the coming years and
“Equities will almost certainly outperform cash over the next decade, probably by a substantial degree,” as
Warren Buffett wrote in Oct. 2008 in his op-ed on New York Times. The conclusion was quickly confirmed by the market, which shot up more than 50% from its March lows.
Where Are We with Market Valuations?
As corporate America reports better earnings, investors and consumers alike become more optimistic, risk taking is again encourage, the stock market landscape has changed… for the worse. If the market was undervalued back in Feb., it is fair valued now, at the best. As of today, the Total Market Index (Wilshare 5000) is at $ 10927.6 billion, which is about 77.2% of the last reported GDP. The US stock market is positioned for an average annualized return of 6.2%, estimated from the historical valuations of the stock market. This includes the returns from the dividends, currently yielding at 2.18%. For details, go to
Where Are We with Market Valuations? Please note that this prediction is by no means exact, although it has a pretty good track record. The future return is dependent on the future economic growth and interest and future market valuations. As we all know, stock market is never rational, most of times it is either overvalued or undervalued. Over the past 20 years, it has been mostly over valued. In any case, the actual market return will likely be within the bands of green and red in the chart below, currently reading -2.1% and 11.4%, respectively.