Regular readers know that I favor the median price/earnings (P/E) ratio to assess broad market valuation. Median P/E tends to remove common one-off accounting gimmicks. However, by almost any valuation methodology, the market is overvalued and probable forward returns will be lower.
As of September 30, the median P/E of the S&P 500 Index was 23.3 (with the S&P 500 at 2,168.27).
- 1,576.33 = Current Fair Value (this number is based on a 52.6-year median P/E of 16.9)
- 2,057.69 = Overvalued (the S&P 500 was at 2,168.27 on 9-30-2016, so it is at a level of more than 5% above what is considered overvalued)
- 1,092.81 = Undervalued is at 1,092.81 (a crisis event might get us there)
What does this tell us about returns over the coming 10 years?
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The current opinions and forecasts expressed herein are solely those of Steve Blumenthal and are subject to change. They do not necessarily represent the opinions of CMG. CMG’s trading strategies are quantitative and may hold a position that at any given time does not reflect Steve’s forecasts. Steve’s opinions and forecasts may not actually come to pass. Information on this site should not be used as a recommendation to buy or sell any investment product or strategy.
