The current U.S. stock market valuation has reached 2000 and 2021 levels. Will this time be different?
Three different U.S. stock market valuation models (the Buffett Indicator, CAPE ratio, and Mean Reversion Model - three different ways of objectively looking at the overall valuation of the current market) are flashing extreme overvaluation warning signs that were both last seen in 2000 and 2021. Both 2000 and 2021 marked market euphoria highs, and bear markets followed. You can make all your jokes that you want about gay bears successfully calling 420 of the last 69 recessions or what not, but the undeniable fact is that the track record of these three valuation models showing "strongly overvalued" in unison is 2 for 2 in "calling" bear markets that followed very quickly. Will history repeat itself again? Or is this time different (i.e. - valuations continue to "not matter" for longer)?
[Buffett Indicator \(ratio of U.S. stocks total market cap to GDP\) - Strongly overvalued \(2 standard deviations above historical trendline\). Just like it was in 2000 and 2021.](https://preview.redd.it/gngm7i231abe1.jpg?width=1680&format=pjpg&auto=webp&s=9e03e76ec35654e8eea252751c28f6684f66ae4e)
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[Cyclically Adjusted Price-to-Earnings \(CAPE\) Ratio - Also strongly overvalued. Tied with 2021, but a bit less \\"deviant\\" than it was in 2000.](https://preview.redd.it/pvwgetg1w9be1.jpg?width=1664&format=pjpg&auto=webp&s=ca3c67e0787a248277f1b620ed01bed7281a69ca)
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[S&P 500 Mean Reversion Model - Strongly overvalued - tied with 2000 and 2021.](https://preview.redd.it/4uxqj2gxz9be1.jpg?width=1662&format=pjpg&auto=webp&s=25951a195b5363c0b4476b25963d206e5d51d7f0)
There is also a fourth model - the Interest Rate Model, which measures S&P 500 valuation relative to current 10-year treasury rate. It hasn't quite hit the "strongly overvalued" line (it didn't in 2021 either), but it is pretty close to it.
[Interest Rate Model - Not quite to the \\"strongly overvalued\\" red line, but close. Lower than it was in 2000, but higher than it was in 2021.](https://preview.redd.it/32sl4e1o4abe1.jpg?width=1660&format=pjpg&auto=webp&s=dedfffde7edc549734c8c0747c3e3356ceba79bb)
Two recession risk models - Yield Curve Inversion and the Sahm Rule - may be signaling a rough time as well.
[Yield Curve - The 10-Year to 3-Month treasury spread, after big and long inversion, looks like it may be uninverting now. Historically, recessions or bear markets followed soon after the uninversion.](https://preview.redd.it/iuek8qe66abe1.jpg?width=1651&format=pjpg&auto=webp&s=b11f04747d4069dc6305dbe7d8a631243308b2b8)
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[Sahm Rule value - a measure of the current 3-month moving average of unemployment compared to the prior 12-month low of that same stat. It poked just above the red line, then retreated a bit. Right now it is kind of in \\"Will it or won't it?\\" mode.](https://preview.redd.it/hjkkkzdt8abe1.jpg?width=1673&format=pjpg&auto=webp&s=0151bc58c63c00c2c482642dc2df0f2be53e2173)
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There is also the Fed Funds Rate. It is showing a similar setup to previous cycles of rate hikes, followed by rate holds, followed by rate cuts, followed by recession. The current setup looks similar to 2007-2008 especially. Will the recession or bear market be cancelled this time with "mission accomplished - soft landing achieved"?
[Fed Funds Rate - 2007-2008 looks pretty similar to now.](https://preview.redd.it/1w999tosaabe1.jpg?width=1715&format=pjpg&auto=webp&s=f016a2cda57106d33d7f0b85e303a8199bdb4d6f)
Here is the inflation-adjusted S&P 500 on a log scale chart. It has historically gone through a series of "hot" periods where the market beats inflation for roughly 15 years (give or take a few years), followed by "cold" periods where the market loses to inflation that last 10 years (give or take a few years). The magnitude and time length of the current "hot" period looks like it could be giving way to a "cold" period soon if the overall historical cycle is followed.
[Inflation adjusted S&P 500 - Are we entering a cooling period soon?](https://preview.redd.it/p82of78idabe1.jpg?width=977&format=pjpg&auto=webp&s=da3a49111a2c512564846f330f2053baaa628f2c)
Last but not least, I'll list a few informal "Can't you just feel it it in the room?" type "blow-off top" indicators of a potential market top:
1. Tesla stock doubled in price in like 1-2 months on shallow narratives not backed by numbers. An insane $750 billion market cap to an even more insane $1.5 trillion market cap in 1-2 months on a company earning roughly $13 billion annually (132 P/E ratio right now) and not growing much anymore. Ludicrous. Earnings have not exploded in line with stock price, not nearly at all. I don't care what you TSLA lovers say - your stock valuation is insane and offers no fundamental upside even with pricing in your optimistic assumptions about future growth.
2. Palantir stock also doubled in price in like 1-2 months, also on shallow narratives not backed by numbers. Roughly $100 billion to $180 billion market cap with a price-to-SALES ratio going from an insane 30x to an even more insane 67x. Ludicrous. And I don't care what you PLTR lovers say - your stock valuation is insane and offers no fundamental upside even with pricing in your optimistic assumptions about future growth.
3. *\[Removing this point from discussion because AutoMod thought I was breaking rule #8, even though I wasn't. I pasted it down in the comments section* [*HERE*](https://www.reddit.com/r/wallstreetbets/comments/1hv91vx/comment/m5ssco9/)*.\]*
4. Just the mentality of too many market participants buying ponzi-scheme like assets or money-burning trash companies at all in general, often knowingly. Like, seriously, why is this even a thing? What the fuck is wrong with this market? This shouldn't be happening... like, at all.
5. The great momentum chase of 2024. The theme of the year was to just bid up and crowd into the most popular meme-like line-go-up assets, regardless of fundamentals. It went into over-drive in November/December, to the point of self-parody. It has a very end-stage bull market feeling to it.
6. The great AI hype. Does the potential future of AI justify many of these extreme valuations? Maybe, but I'm not convinced that there's much upside left near-term. The only companies making serious money from this so far are Nvidia and the handful of companies selling the AI hardware to other companies that are speculating on it. And the once rapid progression in generative AI chatbots, picture generators, and video generators seen in 2023 and early 2024 seems to have slowed and hit a bit of a wall in the second half of 2024.
TL;DR - All the warning signs of extreme overvaluation and an incoming bear market are there. Unlike most other gay bear posts that usually just show one "warning sign" chart to make a case, I showed you multiple charts, along with multiple observations. Whether you choose to ignore them or not depends on how long you think the market will choose to ignore them or not.
Positions: (1) Bent over a table. (2) Puts on TSLA, PLTR, MSTR, and some other 2024 momentum clown stocks for 2025. Contemplating whether to inverse or to inverse my inverse.
Update: 1/7 Pre-market - I have taken down the screenshot of my tentative positions from 1/6, because I will be closing some of them and changing some things around. For archival purposes, you may view my original 1/6 positions [here](https://i.imgur.com/J0orM1x.jpeg).
Update: 1/6 7:00PM EST - Cramer on his closing segment on "Mad Money" just said "I think Palantir and Tesla stock are DEFINITELY going higher." Take that for what you will. I know the meme is to inverse Cramer, but he does end up being right short-term a number of times, so it doesn't really make me any more confident in my puts.