A new paradigm shift of excessive liquidity
Valuations have significantly increased since 2010 as a result of Central Bank’s expansion of their balance sheet to control interest rates. The Fed’s new and more aggressive policies were instituted as a result of the 2008 Great Recession.
In 2020 the Fed’s emerging liquidity program which was used to purchase treasuries, mortgages and corporate bonds helped drive equity risk premiums to levels not seen since 1999.
From 2010 to 2021 the Feds Balance Sheet expanded from $1.5 trillion to over $8.6 trillion. As a result, this helped push all asset classes valuations higher.
Largest variance between price and exponential growth trend
The largest variance of price of the S&P 500 to actual exponential growth of companies earnings. This suggests that the past decade's performance has been largely driven by the Fe's balance sheet liquidity from $1 trillion to $9 trillion.
Total U.S. Output vs all valuations
Another very popular metric to measure longer cycle valuations is Valuations to GDP. Currently, this period is seeing the highest Value of Public and Private Equities to GDP Ratio ever.
Average Inflation Adjusted Earnings
Shiller PE Ratio, highest level since 2000. This ratio is based on average inflation-adjusted earnings from the previous 10 years, known as the Cyclically Adjusted PE Ratio (CAPE Ratio), Shiller PE Ratio.
