A few weeks ago we discussed using market valuation measures as a backdrop for making investment decisions.  At the time our general conclusion was that the market had moved from significant undervaluation to being roughly fairly valued and that the so-called easy money had been made.

Another indicator, the ratio of equity market capitalization to GDP has drawn some attention of late in part because it is thought to be Warren Buffett’s favorite market indicator.  However there does seem to be some debate on the interpretation (undervalued vs. fairly valued) of it at the moment.  We reproduce the chart below to allow for your own interpretation.

Source: GuruFocus.com

One source we mentioned in that post was the Morningstar Market Valuation Graph.  Although the market has moved up some 9% in the interim it continues to show the market trading right around fair value.  (This also highlights the fact that these measures are at best a rough guide to what the market will do in any shorter time frame.)

Source:  Morningstar.com

The whole point of this exercise is to get a better handle on the market backdrop.  There are some indications that the risk culture has returned to Wall Street.  From that perspective it seems we have entered a more normal phase for the market where risk-seeking has replaced risk-aversion.  As we have said before the market is going to do what is going to do, but the above charts indicate investors need to be a bit more discriminating than they were just a few short months ago.

This content, which contains security-related opinions and/or information, is provided for informational purposes only and should not be relied upon in any manner as professional advice, or an endorsement of any practices, products or services. There can be no guarantees or assurances that the views expressed here will be applicable for any particular facts or circumstances, and should not be relied upon in any manner. You should consult your own advisers as to legal, business, tax, and other related matters concerning any investment.

The commentary in this “post” (including any related blog, podcasts, videos, and social media) reflects the personal opinions, viewpoints, and analyses of the Ritholtz Wealth Management employees providing such comments, and should not be regarded the views of Ritholtz Wealth Management LLC. or its respective affiliates or as a description of advisory services provided by Ritholtz Wealth Management or performance returns of any Ritholtz Wealth Management Investments client.

References to any securities or digital assets, or performance data, are for illustrative purposes only and do not constitute an investment recommendation or offer to provide investment advisory services. Charts and graphs provided within are for informational purposes solely and should not be relied upon when making any investment decision. Past performance is not indicative of future results. The content speaks only as of the date indicated. Any projections, estimates, forecasts, targets, prospects, and/or opinions expressed in these materials are subject to change without notice and may differ or be contrary to opinions expressed by others.

Please see disclosures here.

Please see the Terms & Conditions page for a full disclaimer.