Friday, October 3, 2008

Stat of the Day: Stocks undervalued by nearly 60%


The IBES valuation model continues to show stocks are very undervalued. The ratio is at record low levels. The current S&P500 yield is at 8.84% while the 10 year treasury note yield is at 3.66%. The fear is so great that people continue to favor low yielding notes for much higher yielding stocks.
Very interesting to note that the market is at the exact inverse of the 2000 peak. At that peak in 2000 the market was 60% overvalued. Since then though, the market has consistently been undervalued partly because people preferred to invest in real estate over the last 5 years and the stock market crash in 2000 scared people away from the market. Once stability returns to the markets, stocks should be in for a long run. This valuation model should return to the even mark at some point in the future.


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