We’ve incorporated our fair share of complicated charts and concepts into our letters over the months. This one, in our opinion, really keeps things simple. If we’re trying to figure out if the stock market is expensive, doesn’t it really come down to affordability for most people?
When we look at the average earnings of workers across America – $21.90 per hour – the stock market has never been less affordable. It currently requires 109 hours of work to buy the S&P 500 (assuming one could buy 1 unit of the index at its current level of approximately 2,390).
This compares to a pre-tech bubble average of closer to 30 hours required to invest in the S&P 500. That’s roughly 3.5x the number of hours of labor required to buy the stock market than 20+ years ago.
So if we’re evaluating whether the market is expensive or cheap, this chart makes a pretty compelling case that the average American worker would probably agree with.