Is The Stock Market Getting Too Expensive?

I’ve written several articles over the past few years where I argued the market was not extremely overvalued when many used the historical average Shiller PE to highlight the market as being, well, extremely overvalued.  The problem with using the historical average, as I see it, is including data from say the early 1900’s to forecast the valuation of today’s market is plain wrong; two different worlds.  I’ll discuss the methodology to give a basic understanding on how a conclusion (market valuation) is arrived at.

This method measures market risk over a set time based on Shiller. The Shiller PE (known for Yale University economist and professor Robert Shiller) is the current price of the S&P 500 divided by the past decade’s average inflation adjusted earnings of the index.

The valuation data is derived from a rolling time frame to the present or the year under examination.  Five median values are calculated for each period at the specified intervals. The interval that best fits the historical record is eight years.  We’ll look at a few examples to get a feel for how it works, specifically 1929, 2000 and 2007 followed by a current analysis.

The following color code definitions are:

  • Green – Market cheap to reasonably priced. Good time to find bargains

  • Yellow – Caution, more of a hold pattern. Bargains not as abundant

  • Red – Expensive. The period before a correction.


…Click here to continue reading the full article…

About IIEX

Click "About" in the menu at the top for more information about the author. We also have a page at "Seeking Alpha" ( ). Please Click on and read the "Disclaimer" in the menu at the top. Have a question? Contact us at
This entry was posted in Economy, M, Markets, MSFT, Stocks. Bookmark the permalink.

Leave a Reply

Fill in your details below or click an icon to log in: Logo

You are commenting using your account. Log Out /  Change )

Google photo

You are commenting using your Google account. Log Out /  Change )

Twitter picture

You are commenting using your Twitter account. Log Out /  Change )

Facebook photo

You are commenting using your Facebook account. Log Out /  Change )

Connecting to %s