Shiller P/E Ratio shows stocks expensive

The Shiller P/E, a price earnings valuation measure based on 10 year trailing earnings and created by Yale professor Robert Shiller, is now at readings that show stocks to be pricey.


According to the Shiller P/E ratio, the S&P 500 is now 35% overvalued.

David Rosenberg, chief economist with Gluskin Sheff, elaborated in today's morning update,

"The April data was just updated and showed the inflation-adjusted normalized P/E, on 10-year trailing profits, expanded to over 22x from 21x in March.
This is not nosebleed territory, but it is expensive; the historical average is 16.4x. So, this implies that the market is currently 34.7% overvalued benchmarked against the historical norm. It would be nice to say that a higher-than-normal P/E is justified by low inflation and low interest rates. But frankly, real bond yields are not that far from their long-run averages; however, equity valuation is, and something is going to give at some point.
Valuation metrics are not meant to be timing devices. Assets, securities, and currencies can stay overvalued for extended periods of time, but inevitably Bob Farrell’s rule number one on the concept of “mean reversion” will come into play. The operative strategy is to buy low and sell high, not the opposite; and to be paid to take on risk as opposed to be paying for taking on the risk. "