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Pastimes : Clown-Free Zone... sorry, no clowns allowed
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To: MythMan who wrote (403269)4/21/2010 9:11:14 PM
From: Giordano Bruno  Read Replies (1) of 436258
 
Rosenberg - According to the Shiller P/E ratio, the S&P 500 is now 35% overvalued — a full one standard deviation event.

The April data was just updated and showed the inflation-adjusted normalized P/E, premised on “bird-in-the-hand” (as opposed to consensus earnings forecasts, which is historically more than 20% higher than we get actually get — one reason why Wall Street banks are dubbed “the sell side”) 10-year trailing profits, expanded to over 22x from 21x in March.

This is not nosebleed territory, but it is expensive; the historical average is 16.4x. So, this implies that the market is currently 34.7% overvalued benchmarked against the historical norm. It would be nice to say that a higher-than-normal P/E is justified by low inflation and low interest rates. But frankly, real bond yields are not that far from their long-run averages; however, equity valuation is, and something is going to give at some point.
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