What is the value of stocks today?

I have put together some estimated numbers to give a better perspective of current stock market values.

Consider that the total stock market value of approximately 19 trillion dollars at the peek of the market in October of 2007.  The current estimated value of the stock market is 10 trillion dollars.  We certainly do not believe that businesses in the U.S. have lost 9 trillion dollars in value.  If this was true, our unemployment rate would be significantly higher than current levels. 

One of the most basic ways to value stocks is to look at a company's Book Value, which is the value of assets shown on a company's balance sheet. 

The current book value of the stock market is approximately 5 trillion dollars.  This value represents a 2 to 1 ratio to its' estimated value figure of 10 trillion.  This ratio is historically low, when compared to past periods.  In 1999, the market was at a 5 to 1 ratio.

The broad market is now at 2002 levels, the bottom of the last bear market.  This does not mean that the market cannot drift lower.  The market can drift lower, but it would require significant worsening economic conditions and historically lower value matrix.

The stock market has a long history of over shooting, both during up swings and downward trends.  This period is no exception!  The fear of the unknown is driving current downward trends.  It is human nature to imagine the monster around the next bend as more terrifying then the reality of the moment.

The long term moving averages are now at past long term support levels.  The markets should form a bottom at current levels as we continue to wash out the market.  In other words, we will run out of sellers, with trillions on the sideline looking for the opportunity to get back in.  If we do avoid the total meltdown of our economy, the market should have a strong rally lasting into January 2010.

The longer term prospects for the market are positive, because of the over reaction and indiscriminant selling we have witnessed.  This has created an unusual buying opportunity for a 12 month or longer time horizon.  The market needs 12 months to work through the current issues plaguing it today.

Eduard Hamamjian, Managing Director
of GeaSphere LLC