Extreme optimism and extremely low dividend yields

The 20-day average equity put:call ratio has dived to new lows, and yesterday the single-day reading printed 0.32, among the eight lowest readings since 2004.

Indexindicators.com

From stockcharts.com, here’s the raw data going back to 2004, plotted against SPX:

It looks like the closest previous instance of such a string of super-low readings (though not as many as at present) was Dec 2003 – Jan 2004, which marked the middle of the final lunge before an eight-month correction of the bull trend. Of course, that was during the fastest period of mortgage and consumer debt accumulation the US has ever seen, whereas today we are still unwinding that mess.

The markets certainly think this is 2004 and that earnings are going to explode back to the peak levels of 2007, even though it took an orgy of debt to generate those for just a few short quarters. Dividend-wise, stocks are yielding half as much as the 10-year bond, which is guaranteed to deliver those coupons, while common shareholders just hold a derivative claim.

From multpl.com, here’s the dividend yield on the SPX (and theoretical predecessor) going back to 1881 (top) vs the inflation-adjusted price (bottom). Even at the lows last year, stocks were never even close to a good deal in historical terms, and in fact their yield then was about the same as at the 1898, 1907, 1929, 1966, 1968 and 1987 market peaks:

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It’s clear from these charts that investing in a low-yielding market is not a winning strategy for capital preservation.