Mark Hulbert opines in MarketWatch that “The stock market has to fall a lot further before the valuation indicators will be blowing in the direction of higher prices.” He looks at six valuation indicators and maintains that “recent weakness has simply worked off an extreme overvaluation.” Hulbert notes that current valuations are higher than at 71% to 89% of bull market peaks back to 1900.
Specifically, he points to the following:
- Price/book ratio is at 2.6 to 1, which is higher than at 23 of the 28 bull market peaks since the 1920s.
- Price/sales ratio is at 1.1 to 1, which is higher than at 16 of the 18 bull market peaks since the 1950s.
- Dividend yield is at 2.2% for the S&P 500, which is higher than at 30 of the 35 bull market peaks since 1900.
- Cyclically adjusted price/earnings ratio is at 25.9, which is higher than at 30 of the 35 bull market peaks since 1900.
- The “Q ratio” developed by Nobel laureate James Tobin shows the market to be more overvalued than 31 of the 35 bull market peaks since 1900.
- Price-to-earnings ratio is estimated at 20.1 to 1, which is higher than at 71% of past bull-market peaks.