i'm going to call this an update video And back in January I analyzed the TSX the NASDAQ the Dow Jones and the S&P 500 using the standard deviation metric And this is a tool that shows how far markets stray from their historical trends Now at the time if you watch that video you'll remember that each of these indices were just expensive They were extremely overvalued They were extremely stretched and valuations were well above their normal historic ranges I warned at the time or I explained at the time that markets rarely stay at such high levels uh for very long There's some form of correction that will always happen and it was likely Now if we look at today if we fast forward to today the markets in fact have pulled back I'm sure I'm not breaking any news here but not all of them have pulled back equally And in the video today I'm going to do this update I'm going to compare where we were back then to where we are now and what it could mean for us as investors going forward I want to take a quick look at how the major indices have performed since that video back in January So since that time it was January 25th the S&P 500 is down roughly 9 and a half% Dow Jones is down about 9.7% The Nasdaq 100 is down around 10 almost 11% and the TSX is down just over 2% And you can see that this is after a recent recovery They have been down lower than this during the 3 months Before I dive into each of the charts for the indices here I want to quickly review what standard deviation is just to make sure that we're all on the same page here In the simplest of terms standard deviation measures how far something moves away from its average over a period of time When a market for example like the S&P 500 or like the TSX when it moves one or two standard deviations above its historical mean it tells us that it's getting very stretched It's very expensive Or it can go below as well It can become very cheap uh if it's under if it's a negative standard deviations compared to normal levels Now typically the further that the prices move from the mean the more likely it is that they're eventually going to snap back closer to that mean This is a process called mean reversion You may have heard of that before And that's why extreme moves beyond two standard deviations are often a signal of higher risks for investors That's exactly where we were um in January Now if you would like a deeper explanation of how standard deviation works with investing you can watch the original video I will put a link here so that you can review that if you would like Okay So where are we today Let's start with the S&P 500 This is where we saw some of the most extreme overvaluations when we looked at it back in January So at the time the S&P 500 was trading well above two standard deviations And again this is a sign of extreme overvaluation The index was nearly 80% above its historical mean it was flashing strong warning signals for a future pullback Just to point out that it's very rare that we see this move above the two standard deviation mark So that meant that there was significant risk to the reversion at that point And I suggested that if you're you know at all worried about volatility maybe a defensive positioning uh stance might be good Now today after the correction the S&P 500 has moved back below the plus two standard deviations It's sitting between 1 and two So it's still elevated but it's not at that extremely high level anymore Today I would say that valuations do remain above their long-term averages but they are healthier than they were three months ago Definitely the riskreward dynamics that may have improved slightly but if you are an investor here in this environment you still need to be very selective There are probably emerging opportunities that are presenting themselves Remember you're looking at probably uh buying individual securities within the index It's not the index itself So there definitely will be some um opportunities there As before though I would say you want to focus on quality You want to focus on diversification and perhaps gradually buying into weakness Now I want to move now to the Dow Jones Industrial Average And you may remember back in January the Dow was also trading above that plus two standard deviations Again another sign of stretched valuations My observations back then was that this index was elevated vulnerable to a potential pullback Again defensive balance positioning is what I recommended as a portfolio strategy uh back in the day Now today the Dow has corrected sharply as have the other indices for the most part Now moving closer down to the plus one standard deviation level Now my current observations is that there has been a significant reversion to the mean that has already occurred So these risk levels are more normal Still though if we look at this by historical norms the index is still overvalued from an investor perspective Obviously some of the stocks on the Dow might be offering a more attractive level than they were three months ago Again I would focus probably on dividend blue chip uh companies These remained probably more attractive for long-term investors Now I want to shift over to the NASDAQ 100 where back in January the valuations were even more stretched than these other indices But please just take a moment right now and let me know if you would like more updates like this as the market cycle continues to unfold I'd be happy to bring those back on a regular basis Now in the NASDAQ back in January it was crazy Well above the plus two standard deviations and this was driven of course by the tech sector enthusiasm the momentum that we saw back in AI My key observations back then is that the markets were extremely stretched valuations I said the markets the NASDAQ in particular um had extremely stretched valuations and it was highly vulnerable to a correction Now we have seen a pullback and the NASDAQ has actually fallen now below the two plus standard deviations but just below that It does still remain elevated compared to historic conditions Some of the current observations I have as I say some of that froth has been removed but certainly not entirely Valuations are still relatively high If you're an investor here are some of the implications You have to stay very selective You want to broaden your focus beyond just the mega cap names if you haven't done that already Now finally uh let's check in on the TSX where in January the index was trading above the two plus standard deviations And this is an unusually stretched level historically Key observations back then again the TSX was showing significant overvaluation relative to its long-term average Defense sector exposure sort of helped keep volatility lower but the risks were absolutely rising back then I urge more caution and defensive positioning Here we are 3 months later The TSX interestingly does remain above the plus two standard deviations This is the only one of these four indices We're still trading at that high level But unlike the US indices that have corrected quite sharply the TSX has only seen a modest pullback of about 2% That's where we are today It has been down lower in the interim but today we're sitting at about 2% lower than where it was at the time So currently here the valuations I think are still stretched compared with these historic averages The TSX has definitely been more resilient than its US counterparts So as an investor that means that the risks of this reversion are still pretty high I would say they're still elevated and investors should definitely stay cautious and avoid chasing prices higher Uh again income defensive sectors continue to probably offer the best relative value Now when I look at these four in aggregate most of the markets that were dangerously stretched back in January they have corrected meaningfully no doubt about that But we're certainly not back to cheap levels yet So you know the buy the dip buy in the pullback maybe some merit to that but certainly we're not at a cheap level on any of these indices yet The extreme risks have eased somewhat but you should definitely still tread carefully The exception here is the TSX which is still trading at over two standard deviation level So you have to use extreme caution there As an investor uh you want to really focus on selective buying right now Focus on quality focus on maintaining proper diversification That will probably be one of the keys to success going forward This is if you're buying individual securities if you're buying an index then uh well you're along for the ride regardless of what happens there uh reminder I guess the corrections these are uncomfortable but they are part of normal and quite healthy part of long-term investing that's how the markets work these type of pullbacks they they reset the expectations they realign the valuations with the fundamentals and they do create opportunities if you are a patient investor if you are a long-term investor then staying disciplined during these times obviously uh adding selectively you know rebalancing thoughtfully this is where you can really build wealth um over time thank you so much for watching the video If you did find this update helpful please don't forget to like subscribe share it with anyone that you feel could benefit from a little perspective right now As always thank you for watching