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%.”
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.
Source: Chartoftheday, Shiller Econ & Gluskin Sheff
Mr. Roche is the Founder and Chief Investment Officer of Discipline Funds.Discipline Funds is a low fee financial advisory firm with a focus on helping people be more disciplined with their finances.
He is also the author of Pragmatic Capitalism: What Every Investor Needs to Understand About Money and Finance, Understanding the Modern Monetary System and Understanding Modern Portfolio Construction.