Last week the Federal Reserve updated its quarterly Financial Accounts of the United States Z1 (formerly Flow of Funds) meaning that we can recheck valuation levels of the stock bubble from alternate points of view (data). The most common valuation given by the report is Tobin’s Q which compares the estimated value of corporate equities (liability) to nonfinancial corporate business net worth rather than earnings. It is an alternative view that incorporates elements of the balance sheet (notably leverage) while maintaining an anchor to fundamental economic composition.

Since QE3, valuations according to the Q ratio had gotten as far out of balance as the early dot-com bubble, circa 1996. For my own analysis, I modify the Q ratio by subtracting commercial real estate assets from net worth to avoid having one bubble “justify” another; as rising real estate values turn into a bubble themselves they would artificially increase corporate net worth and then skew the valuation through purely financial means. This modified Q shows valuations a bit further along in comparison to the dot-com bubble, circa late 1997/early 1998.

The Z1 series estimates that corporate equities peaked in Q1 2015 at $23.1 trillion, which pushed the modified Q valuations to a new “cycle” high in that quarter. In the original Tobin’s Q format, valuations peaked in the middle of 2014 which suggests the influence of commercial real estate at least over that small window. Both valuation methods show, of course, the more recent stock market stumble which has had very little effect overall in bringing about more balanced appraisals for stock prices systemically. The Q3 2015 estimates for corporate equities show a 10% decline from the Q1 peak, so this series does capture a good deal of the mid-summer turmoil as far as valuation effects are concerned.

That view seems to align very closely with other fundamental methods, including reported corporate earnings and Robert Shiller’s CAPE ratio.