• 29 mins Aluminum Is Bouncing Back In China
  • 2 hours The Deep-Sea Mining Debate
  • 18 hours Markets Trending Down Despite Tech Blow-Out
  • 1 day Big Oil Battered On Dismal Earnings
  • 2 days Russian Billionaire Bails On Mid-Sized Gold Miner
  • 2 days Gold Stocks Gear Up For A Big Autumn
  • 3 days America Is Looking To Bring Nuclear Power To Space
  • 3 days What Is Behind Gold's Astonishing Rally?
  • 4 days Stocks Tumble On Brutal Economic Report
  • 4 days Kodak Soars By 400% After Trump Bump
  • 5 days U.S. Coal Production Falls To 42 Year Lows
  • 5 days Indonesia Moves To Bolster Mining Sector
  • 6 days The U.S. Dollar Is Losing Ground As A Reserve Currency
  • 6 days Gold Prices Soar To Record Highs As Dollar Dips
  • 7 days Republicans Unveil Stimulus 2.0
  • 7 days Big Oil Is Back On The M&A Game
  • 8 days Big Banks Want Masks And Lockdown In Second COVID Wave
  • 10 days The Unintended Consequences Of A COVID Stimulus
  • 11 days Tesla Looks To Incentivize Nickel Miners With Massive Contract
  • 11 days Congress Butting Heads Over New Round Of Stimulus Checks
Another Retail Giant Bites The Dust

Another Retail Giant Bites The Dust

Forever 21 filed for Chapter…

What's Behind The Global EV Sales Slowdown?

What's Behind The Global EV Sales Slowdown?

An economic slowdown in many…

  1. Home
  2. Markets
  3. Other

Global PEs and Price-to-Book Valuations; Bubble Debate Revisited

In JP Morgan's Quarterly Market Guide a pair of charts on page 31 caught my eye.


Forward PE Estimates

Equity Market Valuations - Price to earings
Larger Image

I don't have any faith in forward PE estimates. They tend to be overly optimist and subject to numerous "one-time" writeoffs.

Instead, I recommend watching 10-year smoothed PE ratios. See discussion below.

Nonetheless, please note that even on a forward-basis, the S&P 500 ratio is well above most other markets.


Price to Book Valuations

Equity Market Valuations - Price to Book
Larger Image

On a price-to-book basis, US equities are twice as expensive as numerous other markets.


Case-Shiller Smoothed PE

The Case-Shiller PE is a Cyclically Adjusted Price-to-Earnings ratio, commonly known as CAPE, Shiller P/E, or P/E 10 ratio.

To calculate "CAPE", you divide the current price by the inflation-adjusted average of the last ten years of earnings.

Here is a link to the Current Shiller PE, updated daily. A better-looking chart is shown below.


Bubble Debate Revisited

Doug Short at Advisor Perspectives does periodic updates to the Shiller PE. His latest was on October 1 in Is the Stock Market Cheap?

Real S&P Composite 1871-Present

On a PE/10 basis stocks are in the fifth quintile range signalling extreme overvaluation. Higher smoothed PEs happened in 1929, the dot-com bubble, 1902, and earlier this year.

The historic P/E10 average is 16.6. After dropping to 13.3 in March 2009, the ratio rebounded to an interim high of 23.5 in February of 2011 and then hovered in the 20-to-21 range. It began rising again in late 2013 and hit a new interim high of 27 in February of this year. It has now dropped below that high.

Of course, the historic P/E10 has never flat-lined on the average. On the contrary, over the long haul it swings dramatically between the over- and under-valued ranges. If we look at the major peaks and troughs in the P/E10, we see that the high during the Tech Bubble was the all-time high above 44 in December 1999. The 1929 high of 32.6 comes in at a distant second. The secular bottoms in 1921, 1932, 1942 and 1982 saw P/E10 ratios in the single digits.

For further discussion on just how over-valued US equities are, please see Bubble Debate; Equity Allocations vs. Shiller PE; Simple World.

 

Back to homepage

Leave a comment

Leave a comment