I have used the Wilshire 5000 level at year end multiplied by 1.2 as a proxy for total stock market capitalization (except where noted by the month), and the latest summer revisions for calendar nominal GDP, in summer 2014 for the period back to 1999, and in summer 2013 for the period back to 1971.
A ratio close to 1.0 indicates the market is fairly valued relative to GDP. A ratio less than 1.0 indicates the stock market is "on sale" to some extent (for example, a ratio of 0.48 indicates the market is trading at a 52% discount). A ratio of more than 1.0 indicates the stock market is expensive and may be considered overvalued for investment purposes (for example, a ratio of 1.72 indicates the stock market is as much as 72% too expensive).
1971 .975
1981 .480
1987 .595
1990 .622
1994 .745
1997 1.296
1999 1.715
2000 1.420
2001 1.209
2000 1.420
2001 1.209
2002 .912
2003 1.125
2004 1.170
2005 1.147
2004 1.170
2005 1.147
2006 1.234
2007 1.228
2008 .740
March 2009 .676
2009 .962
2010 1.071
2011 1.019
2012 1.113
2013 1.410
March 2014 1.407
June 2014 1.446
Historically considered, valuation of the stock market by the end of 2008 made then a much better investing opportunity than was late 2002 and early 2003, almost 20% better. And valuations have remained reasonable throughout 2010-2012 and only became expensive in 2013. The four year period beginning in late 2008 has been an excellent opportunity for those with cash to invest.
I maintain that a primary driver of conditions in 2013 was the midnight hour 2012/2013 resolution of tax uncertainty, in the form of making the Bush tax cuts and alternative minimum tax rates permanent, ending the tinkering with Social Security, and reaching a compromise on capital gains tax rates.
All hail John Boehner.
