[ad_1]
However, the situation in the media market is constantly changing: if you want to support quality business journalism and want to be part of the Portfolio community, subscribe to Portfolio Signature articles. Know more
The indicator has been deciding more and more peaks during the last two years, right now It stands at 183 percent. In their calculation, we divide all companies listed on the US stock exchange by US GDP.The total capitalization of US markets is measured by the Willshire 5000 index, which is currently measured by about 35.5 billion dollars. The latest official US quarterly GDP figure is $ 19.4 billion.
In an interview with Fortune magazine in 2001, Buffett described the indicator as follows:
“Probably the best metric to measure relative value”
The dot-com was excellent for the globe and the 2008 crash, reaching more and more peaks between 1999 and 2001. Its maximum value in the dot-com was almost 120 percent, while in the 2008 crisis it was 100 percent.
How reliable is it now?
When putting the metric in context, we will need some considerations. Store closures and travel restrictions played a major role in the year-on-year decline in large US GDP.
The quantitative easing of the US Federal Reserve (FED) and its balance sheet of nearly $ 7 trillion is having a major impact on the economy. This can be multiplied by pumping money into the economy and therefore has a multiplier effect. The unprecedented US fiscal stimulus is also contributing to the abundance of money, making it difficult to compare the dot-com balloon to the current situation. The state bailouts of troubled sectors, and especially the use of helicopter money, is an unprecedented step in American history. Last but not least, the 2001 interest rate was above 6 percent before the balloons blew up and then dropped to less than 2 percent. With the current interest rate of 0-0.25 percent in the United States, due to the relative and real cheapness of money, the two situations are not comparable.
In any case, the indicator warns of a strong separation between the stock market and the real economic performance. While near the all-time highs for the S&P 500 and Nasdaq, another particularly weak macro data this week warned about the state of the economy, with nearly 1 million jobless claims registered in the US Thursday, attracting about 57 million. people since the start of the coronavirus crisis. He lost his job.
(Business Insider)
Cover image: Daniel Zuchnik 2017
[ad_2]
