A Few Data Points on Current Valuations

Earlier this week a friend asked me about the recent volatility in Capital Markets … which by the way are really just going back to normal times ….

My Answer ….

“We got ahead of ourselves and valuations are a bit high!”

His comment …

“No way, earnings are good, markets cannot be overvalued!”

Let’s take a look and see for ourselves?

Check Points on Current Valuations

Price Earnings of the S&P 500

Currently 24 with a long term average of 15

Shiller or CAPE Price Earnings – 10 year average Price Earnings

Currently 32 with a long term average around 17

Price to Book Value

Currently 3.31 with a long term average of 2.75

So what does it all mean?

We are not WAY overvalued, overvalued compared to historical averages ….we are not cheap either …. but still maybe ahead of ourselves … leading to a good excuse for battle grounds and perceived volatility (again, really just back to the normal).

Want the Good News?

Right now earning are expected to grow about 15-20% this year. If they do, and the capital markets do not go up that much, (very likely) we are now less overvalued, and risk may be lower!

Bottom Line … Patience this year will be needed!

Have a Great “Valuation Updated” Day!

John A. Kvale CFA, CFP