The US Market Overvaluation Problem

Not just the Magnificent Seven. Time for small caps?

The Coldwater Slow Model starts from the assertion that an asset is fairly priced when it maintains its value relative to the economy in which it resides. I put life into that assertion, and thus make a valuation judgement, by taking Kalecki profits as the income stream from the US asset-pile and the nominal long-term nominal GDP growth (and volatility) as its multiplier.

This simple approach has served well as a guide to what is has happened to the S&P500 since 1990. There have been periods of overvaluation and undervaluation, but the index has always tended to come back eventually to the fair valuation calculated by the Slow Model.