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IS THE STOCK MARKET 26% OVERVALUED?

IS THE STOCK MARKET 26% OVERVALUED?

Courtesy of The Pragmatic Capitalist

The latest data from Robert Shiller’s 10 year PE ratio shows the market currently at a 20.64 multiple.  In his morning note, David Rosenberg noted that this is 26% higher than the long-run average:

“If there was an impediment, in addition to a murky economic outlook, it is valuation. There were revisions to the Shiller valuation data and the latest reading on the normalized real P/E multiple is at 20.64x, up from the 20.0x in February and 20.5x in January. The long-run trend is at 16.36x, suggesting that the S&P is currently overvalued by 26%.”

pe1 IS THE STOCK MARKET 26% OVERVALUED?

This chart provides little of utility in and of itself, but combined with a longer-term look at stock prices it raises some interesting thoughts.  As a student of and believer of mean reversion, I just can’t help but wonder if the recent recovery in stocks is nothing more than a brief respite in the long-term “chop” that has become a defining characteristic of equity prices over the last 10 years.

20100226 IS THE STOCK MARKET 26% OVERVALUED?

Source: Chartoftheday, Shiller Econ & Gluskin Sheff 

 

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