It is an old adage that the market is a weighing machine in the long-term and a voting one in the short-term. The latest data published by the Federal Reserve in itsZ1 Financial Accounts of the United States show the weighing and the voting pointing in sharply different directions.

The new Z1 data allow us to update the value of the stock market using q, which is one way of “weighing” it. Of the two valid ways of assessing the value of equities, q has been significantly more reliable in the past than the other measure, which is the cyclically adjusted price-to-earnings ratio (CAPE). Currently, the overvaluation shown by q is very similar, though a bit lower, than that shown by CAPE, but it is still very high. The latest Fed data, which are up to March 31, include figures in the Z1 Table B.103 for the net worth and market value of non-financial companies. Their ratio compared with its long-term average shows that US non-financial companies were 72 per cent overvalued at a time when the S&P 500 index stood at 2059.

The Z1 data not only show the degree to which the market is overvalued, but they also show how “voting” is keeping the market up. The key voters are companies. In terms of broad categories, non-financial companies have been the only buyers of shares over the past five years. The other categories are households, including mutual funds, foreigners and the remainder, which largely consists of institutions such as pension funds and insurance companies.