The S&P 500 is Overvalued by 7%

Brock Value Latest Ten Years
US GDP (Est) Corp Bond Yield S&P 500 Brock Value Overvaluation
$21.266t 4.21% 2706.53 2525.69 7.2%
These are the latest numbers, updated to February 1. With US GDP at an estimated $21.266 trillion and medium-term corporate bonds yielding 4.21%, the intrinsic value of the S&P 500 index as measured by Brock Value is 2525.69.

By comparison, the S&P closed at 2706.53 on February 1, 7.2% above Brock Value or fair value. Click the chart to enlarge.

Understanding Brock Value charts
Brock Value is the long-sought answer to the question: what is the market worth? BV is a valuation metric with just two inputs: GDP and interest rates. Compared to questionable old-school metrics (and even popular ones like Shiller’s CAPE), BV provides more reliable measurements, especially at critical turning points.
brock value 1960 to present

The red and green lines fence in the normal range of the market, one-third of a standard deviation from BV, the white line. Click image to enlarge.
Valuation Return
Above Red Line 1.2%
Fair Value 7.2%
Below Green Line 10.5%
Median 10-year compound annual real total returns, 1919-2006

The red and green lines found on most of the BV charts on this site indicate the normal range of the market. Measuring one-third of a standard deviation above and below BV (the white line), these guidelines serve as boundaries, beyond which valuation is extreme in one direction or the other. When the market (the yellow line) trades above the red line, it is overvalued. When this happens, my analysis shows that prospective (ten-year) returns are lower than average. Conversely, when the market trades below the green line, it is undervalued and ten-year returns are higher than average.

14 responses to “The S&P 500 is Overvalued by 714”

  1. John E. Calkins

    Your Brock Value Charts are great — please keep them going.

  2. Peter Brock

    Thanks for the good word, John. I will keep this site going until kingdom come.

  3. Tony

    Oh my dear God who dreamt up this baloney? The long term trend line for the S&P 500 index is around 400 at the very most. This makes the S&P 500 index 500 percent overvalued today. Given the strife and outlook for the future a value of 400 is still excessive. I could add the long term trend line for the DOW is around 3,500 while I’m at it.

  4. Pete Brock

    Tony, this forty-year trend channel suggests the market is ahead of itself but I don’t see how you got 400.

    1. stefan

      hi peter, the gdp only comes out quaterly so today is december 18, 2015 you would have to use third quarter gdp to get brock value , any suggestions

      1. Pete Brock

        That’s correct. Because the new GDP numbers come out after the quarter is over, I carry forward the previous level. You could extrapolate the trend forward to produce a pro forma GDP, but I do not.

  5. Emiliano Saccani

    You can use the method with individual stocks?

    1. Pete Brock

      Hi Emiliano,

      Yes, you can, if you have access to enough historical data to calculate a representative median (ten years is enough). Use the price to sales ratio. You can get the sales data from ValueLine.

      1. Emiliano Saccani

        Thanks Peter (also follow you on twitter). I’ll try ko and pg

  6. John D.

    Hello Mr. Brock,

    How were you able to create a “forty-year trend channel” or what source did you use? Thank you for your commentary and website.

    Very Respectfully,

    Tony, this forty-year trend channel suggests the market is ahead of itself but I don’t see how you got 400.

  7. Jim

    Mr. Brock – please keep this thing going…very valuable!

  8. John D.

    Mr. Brock,

    I know this comment section does not lend itself to “blog” type posts, but what are thoughts about equities, bonds, etc. as of January 2018?

    Do you make changes to your own portfolio/investments when the S&P 500 is overvalued or undervalued relative to the 10 year corporate bond?

    I would like to hear your thoughts/ideas/understandings on “The Investor’s Podcast” hosted by Preston Pysh and Stig Brodersen. I can only imagine that they would find your website & research fascinating.

    Very Respectfully,
    John D.

Your Thoughts?