Last year I looked at a few different valuation metrics that showed the US stock market was trading at lofty levels. Following a strong year in which the S&P 500 returned nearly 14% I thought i would update some of those metrics to get an idea of where the market is at going into 2015.
Shiller P/E Ratio
As we head into 2015 the Shiller P/E stands at nearly 28, compared to its level of ~25 at the beginning of the year.
Market Capitalization to GDP:
Market Cap/GDP has also spiked up to levels last seen in the tech bubble of ’99:
Tobin’s Q Ratio:
Finally Tobin’s Q has broken out from approximately 1 a year ago to 1.18 today.
While these valuation metrics have had strong correlations with ten-year forward returns in the market, they tell little in terms of short-term timing. Indeed they all suggested poor future returns at the beginning of last year and the market recorded a nice gain in ’14. That being said, with all these metrics reaching levels last seen at or above market peaks, caution still seems the prudent course of action.