Just a little perspective on market valuation

https://www.multpl.com/shiller-pe

I’m not trying to predict the markets moves higher or lower in the coming weeks, but I did just want to give a little perspective on where we are after this pullback. The overall market valuation is still just barely at the 2nd highest level in history.

The Shiller P/E is only one metric, but there are others (buffet indicator, Total market earnings yield, CAPE ratio, etc) which have been signaling an overvalued market for the last few years. We almost reached the levels of the Dot Com bubble. There was a lot of hand waving and “it’s different this time” conversations being had.

But valuations are a mean reverting metric, they do not grow infinitely. At some point, businesses are not worth what the stock prices being paid for them suggest. Again, predicting when this reversion happens or how overvalued it can get is a fools game. But we can take a step back and look at where we stand, and if this is a moment where mean reversion could happen, we are a long ways from getting there.

Whether it’s through time (years of stagnant stock prices accompanied by slow growth in earnings) or though a sudden credit cycle induced selloff, we are sitting at the top of the hill….not the bottom or the middle.