Click on chart for larger CHART

Source: Bianco Research


As you can see from the above chart, we are nowhere near the 2000 mor 2007 peaks,but still somewhat elevated above historical medians . . .




More charts after the jump.


Source: Bianco Research

Category: Investing, Valuation

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20 Responses to “Market Capitalization As A Percentage Of GDP”

  1. [...] Stock market capitalization as a percentage of GDP.  (Bianco/Big Picture) [...]

  2. wally says:

    It is interesting to compare this to the secular cycle chart that you posted earlier. One might conclude that the last two “secular bull markets” were times when the price of equities simply outran the general economy.

  3. mad97123 says:

    Also consider that the GDP denominator has $10 trillion of borrowed/printed money keeping it up (deficits, QE, Student loans). Think of grossing up the balance sheet with assets and liabilities, but only look at the asset side.

    As we saw last quarter what a decrease in that support does to GDP.

    How long it can go on is a different question, but just like earning, GDP is inflated and not normal or average.

  4. austextrader says:

    I think when you are looking back 80-100 years, the MarketCap/GDP data will give a good insight on relative valuation only if they are looked at together with domestic revenue of publicly traded companies as percentage of GDP. It is possible that say compared to 50 years ago, publicly traded companies are a much bigger part of the economy now. They may also have much larger international operations relatively.

  5. chipfield says:

    Why is this germane? The percentage of total GDP that is generated by corporations is constantly varying, and the number of public corporations that are generating these percentages is also constantly varying. I accordingly think it an interesting chart but don’t know that it is really of significance (particularly over the term detailed in the chart).
    It seems to me that this would only be meaningful if the number of public companies was a constant.
    I’m neither a statistician nor an economist and would genuinely appreciate it if somebody cared to take the time to explain why this is analytically meaningful.

  6. mburkett says:

    With US companies selling more globally than ever, this is what I would expect to see.

  7. bonzo says:

    % of GDP generated by corporations changes, but does so gradually. That’s why the chart is analytically meaningful, at least when comparing now to the past 30 or so years. Comparing to the 1920′s does invite some skepticism. The market is clearly expensive. If you’ve got some cash on hand and your investment horizon is 30+ years, you’d be advised to wait for a better buying opportunity for stocks.

  8. Concerned Neighbour says:

    “somewhat elevated”?

    I must disagree. Nearly 100% above the historical media is dramatically elevated. It looks less bubbly only because of the two other bubbles that preceded it.

  9. cjcpa says:

    To shed some insight, what would the “McDonalds revenue as a percent of US GDP” look like over time?
    I imagine it would be growing over the last 4-6 decades?

    Would it mean that the US Stock market is overvalued? Or would it mean that McDonalds has more locations overseas now than it used to.

    The charts, although neat, raise way more questions than answers.

    Still, recent over and under-valued extremes show up. But Dot Com bubble and March 09 show up on most charts, now….
    (We are at a run of the mill peak now, but not at a mega-bubble peak. so…. buy? sell? hold?…. no signal that I can see.)

  10. wally says:

    “…you’d be advised to wait for a better buying opportunity for stocks.”

    Although you may never get one. There are two things that really are different this time: the general public can invest directly and information is disseminated instantly and widely.

  11. drocto says:

    I like this chart and other ones like it, but there has been substantial growth in the share of non-U.S. profits, so the chart has limited use.

    Charts of U.S. corporate profits as a percentage of U.S. GDP are more useful, since they rely on profits generated within the U.S. Those charts show profits abnormally high.

  12. Angryman1 says:

    Understand the way the system is run, you will understand this chart. It is a financial/credit based system and not a capital or labor driven system.

    As long as you can keep the margins going, you can keep the system moving. Sometimes they run into car wrecks and need a bailout.

  13. rd says:

    1. I keep hearing that many companies aregoing private and the country is running out of public companies for people to hold stock in. Yet this chart says that the market capitalization has more than doubled over the past 20 years as a percentage of the nations’ GDP. Possibly this is just too much financial money chasing too few stocks?

    2. The chart shows that the market cap quadrupled in a handful of years in the 1990s. There is no way that the rest of the worlds economies so that American companies international profits soared to more than 4 times their domestic profits (they always had some international profits).

    3. I can see arguments to be made about expansion of American business interests overseas, but that should be showing up as rising trendline over a period of a coupelfo decades, not sudden manic depressive swings with unprecedented amplitude.

    4. I don’t see the secular bear being over until this chart spends a bunch of time in the 40%-80% range. this chart shows the same general trend to significant over-valuation as other long-term valuation indicators like CAPe, dividend yields etc. based on historic numbers over the past century, not just the aberation of the past few years. It should be clear by now that 2000 was a manic over-valuation (even bigger than 1929) but the underlying economic base was generally stronger than 1929 with better monetary crisis management so we haven’t seen the 90% drop although the poor regulation and fiscal management that allowed the financial crisis to occur will likely take a few more years to work its way through the system, so the recovery may take longer than in the Great Depression. Hopefully, it won’t end with a World War.

  14. Angryman1 says:

    The recovery is almost over. By this time 2 years from now, it will be.

  15. yenwoda says:

    Minor point, but I think the top chart would be slightly more illuminating as a percentage of potential nominal GDP. Yeah, potential GDP ain’t a perfect metric, but I prefer a more-or-less stable denominator in these fractional charts; otherwise it’s hard to tease out the relative impacts of the top and bottom terms. Shown that way the swings would be a bit more pronounced and the low point in 2009 would have fallen below the long-term average.

  16. clipb says:

    these charts, along with others like historical pe, etc are foolish in that “they” have a version of average; above mkt cap/gdp, long term pe, etc. the obvious fact is that the average is skewed by the “bubble” years.
    a much better way to look at this type stuff would be to remove periods that exceed a reasonable standard deviation metric and recalculate the average. the 90′s culminated in a “100 year ” bubble, incorporating that into an average valuation calculation is somewhere between thoughtless and stupid. be interesting to look at the nikkei/gdp/pe and see how that looks.
    sorry about the no caps, have a bad arm.

  17. Theravadin says:

    Yes… but look at returns from Treasuries and this starts to make sense. With Treasuries offering negative real returns, P/Es of public companies are likely to rise… and that will drive market capitalization to GDP upward unless profit margins are falling. Money is just trying to find a return somewhere. I’d expect a long term downward correction when there is a long term upward correction in Treasury yields… but we don’t want to go there, at current debt levels.

  18. [...] Market Capitalization as a Percentage of GDP (Bianco/The Big Picture) [...]

  19. farmera1 says:

    No real surprise. Corporate profits as a percent of GDP is at record highs. Why wouldn’t the market capitalization go up ?

    At the same time wages as a percent of GDP are at record lows and been falling for decades. It is a good time to be part of the one percenters. But as more and more money moves to the one percenters, there will be a time when this system of making the rich richer will collapse.

  20. Concerned Neighbour says:

    Re: the argument that this chart ignores foreign profits of US companies, well that slices both ways, doesn’t it? What about foreign companies earning profits here in the US?

    I don’t buy it.