Here is a summary of the four market valuation indicators I update during the first days of the month. The four indicators are:

To facilitate comparisons, I've adjusted the two P/E ratios and Q Ratio to their arithmetic means and the inflationadjusted S&P Composite to its exponential regression. Thus the percentages on the vertical axis show the over/undervaluation as a percent above mean value, which I'm using as a surrogate for fair value. Based on the latest S&P 500 monthly data, the market is overvalued somewhere in the range of 51% to 80%, depending on the indicator, an increase from the previous month's 49% to 79%.
I've plotted the S&P regression data as an area chart type rather than a line to make the comparisons a bit easier to read. It also reinforces the difference between the line charts — which are simple ratios — and the regression series, which measures the distance from an exponential regression on a log chart.
The chart below differs from the one above in that the two valuation ratios (P/E and Q) are adjusted to theirgeometric meanrather than their arithmetic mean (which is what most people think of as the "average"). The geometric mean weights the central tendency of a series of numbers, thus calling attention to outliers. In my view, the first chart does a satisfactory job of illustrating these four approaches to market valuation, but I've included the geometric variant as an interesting alternative view for the two P/Es and Q. In this chart the range of overvaluation would be in the range of 63% to 93%, up from last month's 59% to 91%.
The next chart gives a simplified summary of valuations by plotting the average of the four arithmetic series (the first chart above). I've also included a logscale area chart of the real (inflationadjusted) S&P Composite along with recessions.
As I've frequently pointed out, these indicators aren't useful as shortterm signals of market direction. Periods of over and undervaluation can last for many years. But they can play a role in framing longerterm expectations of investment returns. At present market overvaluation continues to suggest a cautious longterm outlook and guarded expectations. However, at the today's low annualized inflation rate and the extremely poor return on fixed income investments (Treasuries, CDs, etc.) the appeal of equities, despite overvaluation risk, is not surprising. For more on that topic, see my periodic update:
Note : For readers unfamiliar with the S&P Composite index, seethis articlefor some background information.