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Chart Of The Day: S&P 500 Is 20-50% Overvalued


               
2015 Apr 9, 8:57pm   749 views  4 comments

by indigenous   follow (1)  

The graph below shows five popular gauges of valuation, including those used by the Federal Reserve and investing icon Warren Buffett. The colored circles show where the S&P 500 would be if investors valued earnings today as they did historically. Based on these five measures the S&P 500 is adding a 20% to 50% premium over what decades of history suggests is fair. These readings range from the 80th percentile to the 100th percentile in each case. Not unlike the rhetoric of the late 1990's or mid-2000's, there is no shortage of rationalizations for why such extraordinary valuations are reasonable and justifiable. Yet the fact remains firmly in place, stocks are expensive. Source: "Courage”- 720 Global

http://davidstockmanscontracorner.com/wp-content/uploads/2015/04/Courage-4.8.15.pdf

Comments 1 - 4 of 4        Search these comments

2   indigenous   2015 Apr 9, 9:27pm  

curious2 says

The Schiller PE Ratio is now 27, vs a median 16.

So your chart looks like it is saying overvalued as well?

3   curious2   2015 Apr 9, 11:19pm  

indigenous says

So your chart looks like it is saying overvalued as well?

The chart is Schiller's, and it says current 10-year P/E ratios are significantly higher than the historic median. To return to the historic median, either share prices would need to fall 40% or the 10-year earnings would need to climb 70%, from their current respective levels.

4   indigenous   2015 Apr 9, 11:22pm  

Thanks, so the million dollar question is when.

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