Market Signals: Robert Shiller’s Updated Price-to-Earnings Ratio

Below are two charts that come from Robert Shiller’s website and have not been modified by CB in any way.  These charts look at the cyclically adjusted price-to-earnings ratio (“p/e”), which considers real corporate earnings, from the year 1881 to the beginning of February 2010.  The first chart shows the current p/e ratio at 19.63x, which is far less than the peak in 2000, but one can see the speed at which the market p/e ratio is expanding. Since the end of the 1990s the p/e ratio has spent a significant amount of time above the historical average of 16.35x. According to this metric, the market is currently fairly valued to slightly overvalued, based on historical earnings.

The second chart compares price growth to that of earnings growth.

Tagged with Cyclically Adjusted Price-to-Earnings Ratio, Market Valuation, P/E, Robert Shiller