- A look at the DJIA from a valuation perspective will give us a good indication of future returns.
- I’ll also give a cyclical perspective on stocks by looking at their CAPE ratios.
- As well as explain how valuations usually contract and expand alongside earnings.
Two days ago, I discussed how valuations may be the biggest risk to stocks at this moment. Building on that, I want to go through the Dow Jones Industrial Average (DJIA) and discuss the valuations there.
The DJIA, unlike the S&P 500, is an arithmetic average weighted index and it is far less industrial than it was when it was formed in 1885. Nevertheless, it still gives a good impression of how the American economy is doing.
What I want to build on are valuations.