Re:What to Worry About in This Surreal Bull Market
by crazygringo on Tuesday November 28, 2017 @09:47AM
(#15797672)
Agreed. I've never come across this particular metric before, but intuitively I would have expected something more akin to a P/E ratio in the 10's or even 20's, not a factor of 1x.
Can anyone explain here why the stock market cap isn't much, much higher than a single year's GDP?
Is it because GDP is essentially "revenue" while market cap is "discounted future profits" -- and thus 20 years of 5% profit is going to be on the same order of magnitude of 1 year of revenue?
Re:What to Worry About in This Surreal Bull Market
by the_gastropod on Tuesday November 28, 2017 @10:02AM
(#15797807)
There are only ~5,000 publicly traded companies in the U.S. There are about 25 Million small businesses in the U.S. The stock market cap represents a tiny portion of the entire U.S. economy.
It is my understanding that the value of a stock should be equal to present value of future cash flows. If those future cash flows are growing faster than the discount rate then a value higher than 100% of GDP is to be expected.