How to know when the stock market is overvalued

boomshackala

Many people look at p/e ratios and compare them with historical levels.

This site gives a good indication of the history of the S&P
http://www.multpl.com/

From this we can see that the current level is just under 20. Probably high by historical standards, but not way out of average.

The ETF guide however thinks we're at a much higher level 138 :eek:

These guys are extremely bearish at the moment.
http://www.etfguide.com/research/227/8/5-Disturbing-Facts-For-The-Bulls/
There are 2 differences I can see in measurements. The ETF guide say numbers are:

Based on actual reported earnings, the P/E ratio for the S&P 500 is 138

whereas Robert Schiller's (http://www.multpl.com/) data is based on

P/Es are based on average inflation-adjusted earnings from the previous 10 years (P/E10).

When I check google finance, it does'nt give current p/e ratios on the indexes as far as I can see..

Can anyone vouch for the figures of the ETF guide?

silverharp

This article should give you an idea of the different earnings figures used


http://www.ft.com/cms/s/0/6aa58256-87a0-11de-9280-00144feabdc0.html?nclick_check=1

woodseb

without looking too much on the figures - would guess that the 138x is cos it is based on actual reported earnings which are very low and often negative currently but the market is a forward pricing mechanism so it is not pricing off current earnings