Crestmont Market Valuation Update
Doug Short | Mar 03, 2015 12:47AM ET
Quick take: Based on the February S&P 500 average of daily closes, the Crestmont P/E is now 98% above its arithmetic mean and at the 98th percentile of this fourteen-plus-decade monthly metric.
The 2011 article Crestmont Research data to my monthly market valuation updates.
The first chart is the Crestmont equivalent of the Cyclical P/E10 ratio chart I've been sharing on a monthly basis for the past few years.
The Crestmont P/E of 27.6 is 98% above its average (arithmetic mean) of 13.9. This valuation level is similar to the 96% we see in the latest S&P Composite here ).
The latest Crestmont P/E puts the current valuation at the 98th percentile of this fourteen-plus-decade series.
Ed Esterling's Comments on the Latest Crestmont Valuation Numbers
| The Crestmont methodology is based upon GDP/EPS regressions and GDP forecasts. It is revised each year based upon available GDP data as of Jan 31. There were slight revisions to GDP over the past year (affecting the regressions) and GDP is estimated to be less in 2014 than was originally forecast at this point last year. Also, the forecast for future GDP growth now includes a 1.5% inflation factor rather than 2.0% based upon recent trends and levels (almost no impact on current data; only on longer-term projections). The net impact is that normalized EPS for Jan 2015 is about $1 less than the previous estimate. Therefore, the current normalized P/E is slightly lower than you might have expected from Jan's market decline (due to normalized E being slightly lower). I mention this just so you are aware; the apparent difference is fairly minor and won't distort the data or trend enough to really notice. |
For a better understanding of these charts, please see Ed's two-part commentary here:
Get The News You Want
- P/E: So Many Choices, Part I
- P/E: So Many Choices, Part II
Note from dshort: See Ed's Unexpected Returns: A Course of Insights , an online, on-demand video-based presentation that discusses key concepts from his book Unexpected Returns
Also, here links to the latest updates on Ed's Crestmont Research website.
- January 2014 Updates
- February 2014 Updates
- April 2014 Updates
- July 2014 Updates
- October 2014 Updates
Ed Easterling is the author of www.CrestmontResearch.com .
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