Recently Alan Greenspan said the stock market was way undervalued. However based on research done by Robert Shiller the Cyclical Adjusted PE Ratio (CAPE) indicates the market is not undervalued. The chart below shows the long term average CAPE is at 16.4 which means the market would be fairly valued at that level. Back in March of 2009 the CAPE dropped to 13.3 so it was undervalued by roughly 19%. However in April of 2012 the CAPE has risen back to 22 so the S&P 500 is now overvalued by 34%.
Finally previous historical major market bottoms (points B) haven't occurred until the CAPE has dropped to a value of 7 (points A). The last time the CAPE dropped to around 7 was back in 1982 which preceded the Secular Bull Market from 1983 through 1999. Thus the question is will the CAPE eventually have to drop down to the 7 level before a major market bottom occurs?
No comments:
Post a Comment