Page 76 - Money - November 2018

-RZIWX MARKET INDICATORS

shortly before the dotcom crash.
Other years in which the index
hit a level of two were 1906, 1928,
1937, and 1965—all of which were
followed by big stock market
declines.
Cardiff, who uses the bench-
mark as one of two main factors in
his investment model, says index
spikes don’t always give way
immediately to a bear market or
recession.
“Stock prices often stayed high
for many months, sometimes even
a couple of years,” he wrote
recently. “However, in all cases, a
major decline or crash followed,
pulling down stock prices by 50%
8LMW 'VEWL 7MKREP or more.”
Cardiff’s indicator is hardly the
.YWX *PEWLIH 6IH only one to suggest stocks may be
overpriced. A slew of economic
readings, from housing starts to
the yield curve, have been
It suggests stock prices have gotten too high. suggesting a bear market may be
overdue. So far, stocks have
BY IAN SALISBURY
shrugged them all off, continuing
what’s arguably the longest bull
AMERICANS TEND TO DIVIDE price for new houses, recently rose market in history.
their money between above two. The reading, which Still, Cardiff warns, it would be
two giant types of investments: suggests stock prices have grown foolish to assume stocks can con-
the stock market and real estate. especially lofty relative to home tinue to rise at the same pace they
And by one analysis, the interplay prices, was last reached in 1998, have over the past several years.
between those two can offer
significant market guidance.
Specifically: When stocks get
out of whack, sucking up more The Sound The higher the reading, the riskier the stock market.
than their usual share of invest- Advice Risk
ment dollars, a market crash can’t Indicator The highest- Another spike
be too far off. That’s the thesis of ever reading appeared
the so-called Sound Advice Risk preceded the before the
Indicator, an index comparing 1929 crash. dotcom bust.
2
stocks with home prices, overseen
by Gray Emerson Cardiff, editor
0 ULLSTEIN BILD
of the Sound Advice newsletter.
The index, calculated by
comparing the level of the
S&P 500 to the national median VIA GETTY IMAG ES

1980
1920
1900
1960
1940
MONE Y. C O M NOTE: Graph compares S&P 500 with median new-house price. SOURCE: SoundAdvice newsletter 2000