Seven Metrics That Show The U.S. Stock Market Is Overvalued

Seven Metrics That Show The U.S. Stock Market Is Overvalued by George Athanassakos, The Globe And Mail

First, the ratio of Wilshire Total Market Index to US GDP, Warren Buffett’s favourite, shows that the market is overvalued by 44 per cent. The ratio currently stands at 119 per cent versus a historical average of 82.5 per cent.

Second, the relative valuation of the equity market in relation to the bond market shows that the stock market is undervalued in relation to the bond market by 22 per cent. The earnings yield (the inverse of the PE ratio) exceeds the bond yield by 360 basis points. The long-term average is 280 basis points.

Third, the price to forward earnings ratio shows...