Data Suggests Market Overvalued from 22% to 54%
BY DOUG SHORT
Here is a summary of the four market valuation indicators I updated yesterday:
The Crestmont Research P/E Ratio (more)
The cyclical P/E ratio using the trailing 10-year earnings as the divisor
The Q Ratio, which is the total price of the market divided by its replacement cost
The relationship of the S&P Composite to a regression trendline
To facilitate comparisons, I’ve adjusted the two P/E ratios and Q Ratio to their arithmetic means and the inflation-adjusted S&P Composite to its exponential regression. Thus the percentages on the vertical axis show the over/undervaluation as a percent above mean value, which I’m using as a surrogate for fair value. Based on the latest S&P 500 monthly data, the market is overvalued somewhere in the range of 22% to 42%, depending on the indicator.