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Worrisome Signs Series: Key concerns on US capital markets

While the benchmark stock indices in the United States continues to break into higher highs, some analysts in the market have been issuing warning flags. Here are the current key concerns,

  • The S&P 500 Cyclically Adjusted Price to Earnings (CAPE) valuation has only been greater on one occasion, the dot com bubble. It is currently on par with levels preceding the Great Depression of 1929. CAPE is currently at 30.27
  • CAPE valuation, when adjusted for the prevailing economic growth trend, is more overvalued than during the late 1920’s and the late 1990’s.
  • S&P 500 Price to Sales Ratio is at an all-time high.
  • Total domestic corporate profits have grown at an annualized rate of .097% over the last five years. Prior to this period and since 2000, five-year annualized profit growth was 7.95% that included two recessions.
  • Over the last ten years, S&P 500 corporations have returned more money to shareholders via share buybacks and dividends than they have earned.
  • The top 200 of S&P 500 companies have pension shortfalls totaling $382 billion and corporations like GE spent more on share buybacks ($45 billion) than the size of their entire pension shortfall ($31 billion) which ranks as the largest in the S&P 500.
  • Using data back to 1987, the yield to maturity on high-yield (non-investment grade) debt is in the 3rdpercentile. Per Prudential as cited in the Wall Street Journal, yields on high-yield debt, adjusted for defaults, are now lower than those of investment grade bonds. Currently, the yield on the Barclays High Yield Index is below the expected default rate.
  • Implied equity and U.S. Treasury volatility has been trading at the lowest levels in over 30 years, highlighting historic investor complacency.
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  • Market Data

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November 24 15:30 UTC Released

USECRI Weekly Index*

Actual

145.6 %

Forecast

Previous

145.6 %

November 24 14:45 UTC Released

US1st Half-Mth Infl YY*

Actual

54.6 %

Forecast

Previous

54.6 %

November 27 09:00 UTC 35473547m

ITExport Prices*

Actual

Forecast

Previous

111 %

November 27 09:00 UTC 35473547m

ITImport Prices*

Actual

Forecast

Previous

116.1 %

November 27 14:00 UTC 38473847m

MXTrade Balance, $*

Actual

Forecast

Previous

-1.886 Bln USD

November 27 14:00 UTC 38473847m

MXTrade Balance SA*

Actual

Forecast

Previous

-1.559 Bln USD

November 27 15:30 UTC 39373937m

USDallas Fed mfg bus index

Actual

Forecast

Previous

27.6

November 27 21:00 UTC 42674267m

KRBOK Manufacturing BSI*

Actual

Forecast

Previous

87 Bln BRL

November 28 00:00 UTC 44474447m

BRCentral Govt Balance

Actual

Forecast

Previous

-22.725 Bln BRL

November 28 07:00 UTC 48674867m

DEGDP Growth QQ* Advance

Actual

Forecast

Previous

10.7 %

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