No. of Recommendations: 6
By any chance, do you (or anyone else reading this note) have a sense of the mean historical Shiller CAPE as well as the current Shiller CAPE for the S&P 600?The following chart is even better. Where we are today as at the vertical red line:
firstlinks.com.au - Am valuations returnsIt shows the differences in valuations (using CAPE) between US small caps (Russell 2000*) and large caps and their subsequent 10-year relative returns.
This relationship is even better than looking at the individual CAPE charts, as the ratio explains 64% of the subsequent return difference - as you can see by the scatterplot so close to a line.
Today the Russell 2000 CAPE ratio is 19x versus 32x for the S&P500, the lowest/cheapest since 2000.
In thr past, when small caps have been this cheap versus large caps, they have gone on to outperform by 5% over the next decade.
* The S&P600 is more or less the same as the Russel 2000 but the S&P600 has the profitability requirent filter and over the long term outperformed, but they are highly overlapped and analysis upon one is very good as a proxy for analysis upon the other - especially when comparing to the S&P500 which is radically different.
- Manlobbi
