Weekly Market Update by Retirement Lifestyle Advocates

Stocks – Very Overvalued by Nearly Any Measure

         No matter the metric utilized, one has to conclude that stocks are extremely overvalued.

         I’ve often used the ‘Buffet Indicator’ to measure stock valuations in this publication.  This indicator measures the total value of the stock market compared to total US economic output.  Note the current level. (Source:  https://www.zerohedge.com/markets/come-hell-or-hyperinflation)

         The Buffet Indicator, as noted on the chart (right), is now at a historically high level.

         Using a second stock valuation tool, one comes to the same conclusion. 

         This chart (below/left) illustrates the current level of the Standard and Poor’s 500 compared to its historic trendline.  Notice from this measure, one concludes once again that stocks are very overvalued and may be ready to correct. 

         Finally, when comparing the relative price performance of US stocks to global stocks, one notes that stocks have never been more overvalued.

         The chart printed here (right) shows that US stocks have gone parabolic when compared to the price performance of global stocks.

         While a stock market correction may not be imminent, it’s my view that stock investments have far more downside risk than upside growth potential.

Housing Bubble Deflating?

         Based on recent data, it seems that the housing price decline that I have been forecasting may now have begun.  Wolf Richter reported (Source:  https://wolfstreet.com/2024/12/12/the-most-splendid-housing-bubbles-in-america-november-update-prices-drop-in-all-33-big-metros-most-in-austin-tampa-dallas-san-antonio/) that all 33 of the largest metro areas, housing prices fell from the month of October to November.  That’s the first time housing prices have fallen in all 33 metro areas.

         Richter also reported that there is now the biggest pile of completed but unsold homes than at any time since 2009.  Homebuilders are offering big discounts and mortgage buy-downs in an attempt to move excess inventory.  Leading the price declines in November were the metro areas of Austin, Texas; Tampa, Florida; Dallas, Texas; San Antonio, Texas; and Milwaukee, Wisconsin.  

U.S. Deficit Largest Ever After the First Two Months of the Fiscal Year

         Seems that government spending that was already off the charts increased even further during the months of October and November, the first two months of the 2025 fiscal year.

         According to The Mises Institute (Source: https://mises.org/mises-wire/us-now-track-35-trillion-deficit-2025), the US Government spent $1.25 trillion during the months of October and November while collecting tax revenues of only $628 billion. 

         That’s astounding when you consider that the deficit for the first two months of the financial year was about equivalent to tax revenues!  That translates to roughly a $3.5 trillion deficit by the end of the fiscal year.  While there is a lot of talk about austerity presently, the fact of the matter is that Congress controls the spending, and recent surveys show that the US populace, the constituents of those serving in Congress, want more government spending, not less.

         The Pew Research Center has conducted polling (Source:  https://www.pewresearch.org/short-reads/2023/05/24/6-facts-about-americans-views-of-government-spending-and-the-deficit/) and found that 43% of Americans want the size of the military to increase compared to 17% who say the military should be smaller.  43% of Americans surveyed stated that aid to the poor should be increased versus 26% who think it should be cut.  While 57% of the population surveyed think that Congress should make addressing deficit spending a priority, that support wanes when discussing WHERE the cuts should be made.

Inflation Higher in November

         The Producer Price Index surged higher in November, indicating a higher rate of inflation as the Federal Reserve continues its rate cutting.

         Headline PPI rose .4% month-over-month, twice the rate that the consensus of analysts had forecast.  The big jump was largely driven by increases in food costs, which rose at their fastest rate in more than two years.  (Source:  https://www.zerohedge.com/markets/producer-price-inflation-comes-red-hot-november). This increase in the inflation rate was not surprising given that the M2 money supply has been increasing as the Fed has cut rates.  (See chart.)

         This week’s RLA radio program features an interview that I did with the Head of Global Research at Elliott Wave International, Mr. Murray Gunn.  The radio program is available for your listening pleasure by clicking on the "Podcast" tab at the top of this page.

“If you want to tell people the truth, make them laugh.  Otherwise, they’ll kill you.”                      -Oscar Wilde