Monday , 17 June 2024

“Black Swan” Event Not Necessary to Cause Major Stock Market Decline! Here’s Why

A large stock market decline is coming to the U.S. but it won’tstock market be a black swan – a major event that ‘comes out of the blue’ – because, while its timing is unpredictable, the market’s valuation has reached a level that has always been the precursor to a large decline. Let me explain further.

By Steven Saville ( The original article* was posted under the title Why the next stock market collapse won’t be a “black swan” event.

Tobin’s Q Ratio

The chart below shows that the Tobin’s Q Ratio – a metric similar to a price-to-book ratio for the entire stock market – has only been higher than its current level once since 1900 and that was near the peak of the dot-com bubble.


The “inflation”-adjusted S&P Composite Index vs. the Q Ratio

Below is a long-term chart comparison of the “inflation”-adjusted S&P Composite Index and the Q Ratio from Doug Short.


…The Q Ratio periodically gets far out of whack, [as shown above,]… because we aren’t dealing with a free market; we are dealing with a market subject to intervention by non-market forces, chief among them over the past several decades being the central bank…

The Wilshire 5000/GDP Ratio

…The message of the Q Ratio is echoed by the messages of the Shiller P/E ratio (the Cyclically-Adjusted P/E, or CAPE) and the Wilshire 5000/GDP ratio, the latter of which is depicted below.


Notice that the Wilshire5000/GDP ratio is now about 15% higher than it was at the 2007 major peak, although, like Tobin’s Q Ratio, it hasn’t made it back to the all-time high reached at the crescendo of the dot-com bubble.

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The point [of all of the above] is that nobody should be surprised when the next bear market in U.S. equities turns out to be of historic proportions –  but, of course, almost everyone will be.

[The above article is presented by  Lorimer Wilson, editor of and and the FREE Market Intelligence Report newsletter (sample hereregister here) and may have been edited ([ ]), abridged (…) and/or reformatted (some sub-titles and bold/italics emphases) for the sake of clarity and brevity to ensure a fast and easy read. The author’s views and conclusions are unaltered and no personal comments have been included to maintain the integrity of the original article. This paragraph must be included in any article re-posting to avoid copyright infringement.]

*Original Source:

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