Stock Market Valuation January 28, 2010- Fairly Valued

Due to the recent popularity of my recent article regarding Stock market valuations I have decided to update the serious on a regular basis. I am updating market valuations on a monthly basis would be logical and a benefit to the readers. I decided to use the end of every month as the day to date my data from and to post my article. To see my previous article click here

The content will be mostly the same I will be mostly updating the numbers, and the commentary as to what level the market valuations are at. I will be adding more historical data as I find it.

Below are six different market valuation metrics as of January 28, 2010:

Current P/E TTM 84.3

The current P/E TTM 84.3, which is slightly lower the TTM P/E of 87 the market was valued at in late December

On a TTM basis the S&P has a P/E of 84.3. Based on this data the market is significantly overvalued. However I do not think this is a fair way of valuing the market when considering the significant decrease in earnings over the past year. To get an accurate picture of whether the market is fair valued based on P/E ratio it is more accurate to take several years of earnings.

Stock Market valuation

Current P/E 10 Year Average 19.66

The 10 year P/E ratio is currently 19.66. This is slightly below the 20.42 measure from my previous article in late December. This number is based on Robert Shiller’s data evaluating the average inflation-adjusted earnings from the previous 10 years.

Robert Shiller
P/E 10 Year Earnings adjusted for inflation

Mean: 16.35

Median: 12.87

Min: 4.78 (Dec 1920)

Max: 44.20 (Dec 1999)

Numbers from Previous Market lows

March 2009 13.32

March 2003 21.32

Nov1987 13.59

Aug 1982 6.64

Dec 1974 8.29

June 1932 5.57

Aug 1921 5.16

Data and chart courtesy of http://www.multpl.com/

This is slightly over valued since the average P/E is 16.35 as shown above.

To see the rest of the article view my column on GuruFocus.com

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