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Moody’s Downgrade on Friday Produced a Moody Monday on Wall Street

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Today we will be covering...

  • Today, we will examine long-term stock market valuation and sentiment. As I have warned in the past, these should not be considered or understood as short-term signals.

Future S&P 500 Returns vs Present PE Ratio 

  • The charts below can be used to infer the expected S&P 500 annualized return based on May 2025 PE metrics.

  • Based on both Normalized PE 22.8 of (left) and Shiller Cyclically Adjusted (CA) PE of 36.6, the expected annualized S&P 500 return is approximately 3+%.

  • This chart shows historic variations of Shiller CA PE implied return for S&P 500, presently at 3.2%.

  • Using this chart, one can verify the accuracy of predicted S&P 500 returns based on Shiller CA PE.

Sentiment & Technical Analysis

  • The CNN’s Fear & Greed Index increased to 70, from 69 on Friday.

  • The chart below shows the record exposure of households and nonprofit organizations to corporate equities as a percentage of total assets as of October ’24.

  • One can also notice that the peaks in this metric correspond to the most significant market peaks in the last 75 years.

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