Are Market Valuations too High?
There is a lot of chatter regarding market valuations. Many commentators are very confident that market is overpriced. Overconfidence can be dangerous.
In the words of Twain:
It’s not what you don’t know that kills you, it’s what you know for sure that ain’t true.
Based on the evidence, it is unclear to me that the market is terribly overvalued or undervalued.
First, a look at price to average 5-year earnings. Nothing pops out as crazy.
Next, a look at price to sales. Again, nothing extreme.
Finally, everyone’s favorite–the Shiller PE. On this metric, things look pricey.
The risk premium as measured by “Shiller yield” minus bonds still looks attractive.
Because the market has been on a tear, everything has been tilted to the right since April 30. Nonetheless, the data are not all screaming that the market looks like he Nasdaq during the Internet craze.
What do you think?
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Definitions of common statistics used in our analysis are available here (towards the bottom)