The current U.S. stock market may be the greatest financial bubble in history. But make up your own mind:
1. Stocks are trading at unprecedentedly high price-to-sales ratios.
Today, 530 of America’s 8,513 listed common stocks trade at more than 10 times sales. This is 6.2% of all common stocks. Only at the very top of the dot-com bubble, in March of 2000, did this number go higher (6.6%).
2. In 2000, 3 of the top 10 U.S. stocks by market capitalization had price-to-sales ratios higher than 10: Cisco, Intel and Oracle.
Today, 4 of the top 10 U.S. stocks have price-to-sales ratios of more than 10: Microsoft, Facebook, Tesla and Visa.
4. Warren Buffett’s favourite indicator, the stock market cap-to-GDP ratio, is flashing red. The total value of U.S. stock holdings rose from 60% of GDP in 1990 to 120% of GDP in 1996. Today, the stock market cap-to-GDP ratio in the U.S. is just shy of 200%. The S&P 500 alone is worth about $30 trillion, or 150% of GDP.
We are not able to predict when this will end. But there should be an end to it.
Sven Franssen