Quick take: Based on the August S&P 500 average of daily closes, the Crestmont P/E is now 90% above its arithmetic mean and at the 98th percentile of this fourteen-decade monthly metric.
The 2011 article P/E: Future On The Horizon by Advisor Perspectives contributor Ed Easterling provided an overview of Ed's method for determining where the market is headed. His analysis was quite compelling. Accordingly I include the Crestmont Research data to my monthly market valuation updates.
The first chart is the Crestmont equivalent of the Cyclical P/E10 ratio chart I've been sharing on a monthly basis for the past few years.
The Crestmont P/E of 26.3 is 90% above its average (arithmetic mean) of 13.9. This valuation level is similar to the 85% we see in the latest S&P Composite regression to trend update and higher than the 54% above mean for the Cyclical P/E10 (more here).
The latest Crestmont P/E puts the current valuation at the 98th percentile of this fourteen-decade series.
For a better understanding of these charts, please see Ed's two-part commentary here:
And these articles explore key concepts for investment expectations and planning.
- Nightmare on Wall Street: This Secular Bear Has Only Just Begun
- Game Changer: Market Beware Slower Economic Growth
- What "Secular Cycle" Means
Also, here links to the latest updates on Ed's Crestmont Research website.
Ed Easterling is the author of Probable Outcomes: Secular Stock Market Insights and award-winning Unexpected Returns: Understanding Secular Stock Market Cycles. He is President of an investment management and research firm, and a Senior Fellow with the Alternative Investment Center at SMU's Cox School of Business, where he previously served on the adjunct faculty and taught the course on alternative investments and hedge funds for MBA students. Mr. Easterling publishes provocative research and graphical analyses on the financial markets at www.CrestmontResearch.com.