U.S. Stock Valuations are Rising

U.S. Stock Valuations are Rising

January 30, 2017 Off By Chuck

One way to measure stock valuations (P/E ratio) is the CAPE ratio, which smooths earnings over a ten year period. This ratio for the S&P 500 hit 28.7 this week, which is in the 94th percentile going back to 1928.

The only periods in history with a higher CAPE ratio were July through October 1929 and February 1997 through April 2002.

While it doesn’t mean prices can’t go higher, because they can, it just means the risk to reward at these levels becomes much less compelling. Also something investors should keep in mind, the higher this goes, the worse the eventual snap back can be.