Valuation makes for a poor timing tool, although long-term investors need to keep one eye on the metrics to remain informed.
| Std Dev | Std Dev | ||||||||
| Valuation | 25-year | over/under | 25-year | over/under | |||||
| Measure | Description | Latest | average | valued | Description | Latest | average | valued | |
| P/E | Forward P/E | 17.5(x) | 15.9(x) | 0.5 | Forward P/E | 16.1(x) | 15.8(x) | 0.1 | |
| CAPE | Shiller P/E | 29.0(x) | 26.1 | 0.5 | Shiller P/E | 25.9(x) | 25.6(x) | 0.0 | |
| Div Yield | Dividend Yield | 2.1% | 2.0% | (0.2) | Dividend Yield | 2.3% | 2.0% | (0.5) | |
| P/B | Price-to-book | 2.9(x) | 2.9(x) | (0.1) | Price-to-book | 2.6(x) | 2.9(x) | (0.4) | |
| P/CF | Price-to-Cash-Flow | 12.2(x) | 10.6 | 0.8 | Price-to-Cash-Flow | 11.2(x) | 11.4(x) | (0.1) | |
| EY Spread | EY-BAA yield | 1.00% | -0.30% | (0.7) | EY-BAA yield | 0.80% | -0.50% | (0.7) | |
| Data as of 3/31/17 | Data as of /12/31/16 | ||||||||
| Source: JP Morgan’s “Guide to the Markets” | Source: GTTM | ||||||||
Ive always liked this matrix from JP Morgan’s “Guide to the Market” published by Dr. David Kelly’s team.
While it is always subject to argument, the 25-year time frame for the valuation measures include the late 1990’s large-cap growth and Tech frenzy, and the two bear markets from the decade of the 2000’s.
“EY” is the SP 500 earnings yield, which can be found weekly on this blog, in the “By the Numbers” segment.
Corrections can happen at any time and for any reason.
Thanks for reading.