S&P 500 Tops 4,000 to Begin 2nd Quarter

On Thursday, the first day of the second quarter, the U.S. stock market remains significantly overvalued as the broad indexes set new intraday highs.

The ratio of total market cap to the sum of gross domestic product and total assets of the Federal Reserve stood at 144.4%, up approximately 2% from the March 1 value of 142.3%.

S&P 500 hits 4,000 milestone level ahead of Easter as Big Tech leads market surge

The Standard & Poor's 500 Index closed at 4,019.87, up 46.98 points or approximately 1.18% higher than Wednesday's close of 3,972.89 and topping 4,000 for the first time in history. The stock market is closed on Friday due to Good Friday and Easter weekend.

Shares of Apple Inc. (AAPL, Financial) traded around $122.70 on its 45th founding anniversary, up slightly from the previous close of $122.15.

Major "Big Tech" stocks like Microsoft Corp. (MSFT, Financial) and Google parent Alphabet Inc. (GOOG, Financial)(GOOGL, Financial) gained over 2% for the day: Microsoft gained on the heels of its partnership with the U.S. Army, in which the Redmond, Washington-based software giant will deliver over 120,000 devices based on Microsoft's HoloLens augmented reality headset.

Stocks also received a boost from President Biden's $2 trillion infrastructure proposal and the 10-year Treasury Constant Maturity Rate retreating to 1.68%, down from a 14-month high of approximately 1.77% hit last week.

Stock market remains highly overvalued

Berkshire Hathaway Inc. (BRK.A, Financial)(BRK.B, Financial) CEO Warren Buffett (Trades, Portfolio) said that the ratio of total market cap to gross domestic product is "probably the best single measure of where valuations stand at any given moment." GuruFocus added in December a modified Buffett Indicator that adds the total assets of the Federal Reserve to gross domestic product.

As of Thursday, the Wilshire 5000 Full Cap Price Index is approximately 1.44 times the sum of gross domestic product and total Fed assets, implying a return of -1.3% per year over the next years assuming a reversion to the 20-year mean ratio. According to the modified predicted and actual returns chart, the implied market return per year ranges from approximately -5.4% in the pessimistic case of reversion to 70% of the 20-year mean ratio to approximately 1.8% in the optimistic case of reversion to 130% of the 20-year mean ratio.

Buffett-Munger and Undervalued-Predictable model strategies start year with a bang

According to our GuruFocus Model Portfolios pages, the Undervalued-Predictable and Buffett-Munger model strategies returned 21.64% and 19.12% during the first quarter of 2021, smashing the S&P 500 benchmark return of 5.39%.

Figure 1 illustrates the performance of the above two strategies, while Table 1 shows the number of stocks from each GuruFocus subscription region making the above two screeners as of Thursday.

Figure 1

Table 1

Disclosure: Long Apple.

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