Courtesy of Doug Short’s Advisor Perspectives.
Quick take: Based on the April S&P 500 average of daily closes, the Crestmont P/E is 90% above its arithmetic mean and at the 97th percentile of this fourteen-plus-decade monthly metric.
The 2011 article P/E: Future On The Horizon by Advisor Perspectives contributor Ed Easterling provided an overview of Ed’s method for determining where the market is headed. His analysis was quite compelling. Accordingly we include the Crestmont Research data to our monthly market valuation updates.
The first chart is the Crestmont equivalent of the Cyclical P/E10 ratio chart we’ve been sharing on a monthly basis for the past few years.
The Crestmont P/E of 26.6 is 90% above its average (arithmetic mean) and at the 97th percentile of this fourteen-plus-decade series.
Crestmont Deviation from the Mean
Here are a pair of charts illustrating the historic Crestmont P/E ratio from its mean (average) and geometric mean with callouts for peaks and troughs along with the latest values.
Background on Ed Easterling’s Crestmont P/E
For a better understanding of these charts, please see Ed’s two-part commentary here:
Note: See Ed’s Unexpected Returns: A Course of Insights, an online, on-demand video-based presentation that discusses key concepts from his book Unexpected Returns.
Ed Easterling is the author of Probable Outcomes: Secular Stock Market Insights and award-winning Unexpected Returns: Understanding Secular Stock Market Cycles. He is President of an investment management and research firm, and a Senior Fellow with the Alternative Investment Center at SMU’s Cox School of Business, where he previously served on the adjunct faculty and taught the course on alternative investments and hedge funds for MBA students. Mr. Easterling publishes provocative research and graphical analyses on the financial markets at www.CrestmontResearch.com.
