Stock Market Valuation April 3rd 2011


The current level of the S&P500 is 1,332, and the Dow is at 12,377 nearly unchanged from last month. As evidenced below, market valuations did not change much over the last month.

I update market valuations on a monthly basis. The point of this article is to measure the stock market based on seven different metrics. This article does not look at the macro picture and try to predict where the economy is headed. It only uses these several metrics which have been very good past indicators of whether the market is fairly valued.

I collaborate with two colleagues of mine for some of the data in this article, Doug Short of Dshort, my friend who runs Seeking Delta, and Josh of Multipl. All are great sites, and I encourage readers to check them out.

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As always, I must mention that just because the market is over or undervalued does not mean that future returns will be high or low. From the mid to late 1990s the market was extremely overvalued and equities kept increasing year after year. However, as I note at the end of the article I expect low returns over the next ten years based on current valuations. In addition, individual stocks can be found that will outperform or underperform the market regardless of current valuations.

To see my previous market valuation article from last month click here..

The full article can be found at the –following link.

However, here is a brief summary:

1. P/E (TTM)- Fairly Valued 15.2

2. P/E 10 year – Extremely overvalued 24.13

3. P/BV- Undervalued 2.16

4. Dividend Yield- Indeterminate/ overvalued 1.71

5. Market value relative to GDP- Moderately Overvalued 96.6

6. Tobins Q- Extremely overvalued 1.17

7. AAII Sentiment- Investors are too bullish 41%

8. GMO- Overvalued: Only high quality, and emerging market stocks should do well over the next seven years.



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