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Up Up And Away?

CAMS Weekly Views from the Corner – Week Ending 9/22/2017

September 25, 2017

Speaking to our subject title today we begin with today’s chart.

Market Cap as % of Nominal GDP

Courtesy of Mr. Griess over at The Chart Store ( this chart may look familiar if you are a consistent reader of these Weekly Views being we have referenced it before.  It is one of numerous ways to value the stock market in order to get a historical sense of whether today’s market is expensive, cheap or somewhere in the middle.

As offered by the caption this represents the total value of the stock market compared (as a percentage) to the size of U.S. economic activity as measured by Nominal Gross Domestic Product.

We can see this measure has completely exceeded the level attained just before the start of the 2008 downturn and with this most recently updated version has completely eclipsed the most recent high level attained in 2014.  With this breakaway run we are now solidly higher than at any time since the peak levels attained at the height of the 1990’s technology bubble.

For context this means we now clearly have the second most expensive stock market that we have seen in the last 93 years – yes 93 years – when compared to the size of our economy.  Importantly, this is not a one-off type of valuation measure as we see similar type results when looking at various historical measures.

This May Begin To Matter:

It is often said that valuation doesn’t matter until it matters.

In previous Views we have shared the reality that valuation studies offer little help in determining when collective market participants will begin to have a problem with said level of valuations and begin to send prices lower in order to adjust the high levels to something more reasonable.

So valuation studies such as these offer little help in timing but do give us a sense of how expensive our stock market is as a whole and that is important to know especially now.

This past Wednesday, September 20th, the Federal Reserve informed us they expect to continue to raise short term interest rates (although did not raise on Wednesday) and beginning in October would begin to reduce the size of their monumental balance sheet (keep simple and think: less “printed money”) that they incurred as a result of their historic policy actions taken post the 2008/09 financial crisis.

The massive expansion of their balance sheet coupled with near zero percent short-term interest rates played a tremendous role in the valuation expansions that we have seen post 2008/09 such as displayed in today’s chart.

With prior interest rate hikes (as well as more to come per their announcement Wednesday) the FED has walked away from the zero percent level and now will begin a simultaneous tightening process of reducing their balance sheet – i.e. less printed money.

This action coupled with on-going rate hikes may very well begin to matter as we are now fully entering the “walk away” stage of the FED’s historic Financial Crisis initiatives.  This reversal process and market adjustments to it – overtime – is certainly worth placing on our “be aware” list.

I wish you well…

Ken Reinhart

Director, Market Research & Portfolio Analysis

Portfolio Manager, CAMS Spectrum Portfolio


H&UP’s is a quick summation of a rating system for SPX9 (abbreviation encompassing 9 Sectors of the S&P 500 with 107 sub-groups within those 9 sectors) that quickly references the percentage that is deemed healthy and higher (H&UP).  This comes from the proprietary “V-NN” ranking system that is composed of 4 ratings which are “V-H-N-or NN”.  A “V” or an “H” is a positive or constructive rank for said sector or sub-group within the sectors.

This commentary is presented only to provide perspectives on investment strategies and opportunities. The material contains opinions of the author, which are subject to markets change without notice. Statements concerning financial market trends are based on current market conditions which fluctuate. References to specific securities and issuers are for descriptive purposes only and are not intended to be, and should not be interpreted as, recommendations to purchase or sell such securities. There is no guarantee that any investment strategy will work under all market conditions. Each investor should evaluate their ability to invest for the long-term, especially during periods of downturn in the market. PERFORMANCE IS NOT GUARANTEED AND LOSSES CAN OCCUR WITH ANY INVESTMENT STRATEGY.

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