The S&P Has Never Before Been This Expensive: The 'Peak PEG' Ratio

Measuring the Equity Bubble

In this brief note we discuss how, on some reasonable metrics, the S&P may qualify as the most expensive in history. When compared to potential economic growth, multiples on the S&P500 exceed even those seen during the Tech Bubble in 2000. To value the S&P index, we use a variation of the Shiller P/E and the Hussman P/E. In a simplistic form, the 'Peak PEG ratio' is a price to peak-earnings multiple, adjusted for long-run trend growth. It considers the highest (rather than average) earnings over the previous 10 years and then divides for growth potential. When measured against potential growth, even on its highest earnings, the S&P has never before been this expensive. It is 60%...