Data Suggests Market Overvalued from 22% to 54%

Thursday, November 3, 2011
By Paul Martin

BY DOUG SHORT
FinancialSense.com

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.

The Rest…HERE

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