As the markets have raced up this year (close to 20%) I have remained sanguine and continue to believe that the stock market is overvalued. What are the measures that I use to make this determination? The linked to blog above updates a few measures that have proved valuable in determining the long-term return of the markets (in the short-term is has zero predictability). The three measures are:
The relationship of the S&P Composite to a regression trendline
The cyclical P/E ratio using the trailing 10-year earnings as the divisor
The Q Ratio — the total price of the market divided by its replacement cost
All three measures show significant overvaluation in the S & P 500, the Q ratio showing the worst at 49%. The charts are below:
