Hulbert Highlights Indicators of an Overvalued Market

There are six strong reasons why today’s bull market is on “weak legs” according to Mark Hulbert in a MarketWatch article from earlier this month.

He offers the following chart to illustrate that the current stock market is “more overvalued than it was at 79% to 95% of bull market peaks dating back to 1900”:

Hulbert comments on current indicators including the following:

  • Price-book ratio of 2.8 is higher than it was during 23 out of 29 of the major market peaks since 1920;
  • Price-sales ratio of 1.9 is higher than it was during 18 of the 19 peaks since the mid-1950s;
  • Dividend yield of 2.1% (S&P 500) is lower than during 31 of the 36 peaks since 1900;
  • Price-earnings ratio of 25.2 is higher than 89% of past market peaks.
  • While Hulbert believes that “valuation indicators are not helpful guides to the market’s shorter-term direction” he argues, “value eventually wins out.” He quotes Ben Inker of GMO who compares the current market to a leaf in a hurricane: “You have no idea where the leaf will be a minute or an hour from now. But eventually gravity will win out and it will land on the ground.”