US Stock Market Valuation: Double Check

Following the previous article back in Mar 2024 (https://shoshin.space/en/article/are-we-at-bubbles-for-tech) , 2 years later, now we would like to examine again on US stock valuation.

 

Let’s recall the two indicators we use to examine valuation / healthiness of market :

1.     S&P 500 Stock Price Divided by Money Supply :  to observe whether the current stock market valuation is too high.

2.     Finra Margin Debt Divided by Money Supply :  to observe the willingness to borrow for investment.

While both are at high level, particularly noteworthy is Finra Margin. In Mar 2024, Finra Margin Debt Divided by Money Supply is at c. 0.3 (see chart below). Historical trough is 0.2 and historical peak is 0.4~0.5. Now latest number is 0.53 – already reach 2000 high and 2008 high, meaning retail investors are crowded. This does not count in institutional leverage, which we believe is also at historical high given historical presence of market neutral hedge fund.

With lingering middle east war issue and high oil price, there would be inevitably rising concern on stagflation which coincides with peak valuation. We have been bull for AI for past 3 years, but for the first time in 3 years, we caution investors to be careful about high valuation AI stocks in US on both valuation and debt concern. History doesn't repeat, but it rhymes.

We put this article as free published to help remind more investors.