CAPE Ratio - II

| February 21, 2018
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Charts of the Day

Going back to 1871 when the data set begins, the average CAPE Ratio is 16.79. At its current value of 31.09, the CAPE is 85% above that average, meaning the S&P 500 would need to drop 46% tomorrow for valuations to move back to their historical average.

As I mentioned previously there is not some magical number the marks the end of a bull market, such as a CAPE ration of 31.

Over the past 20 years in fact, the S&P 500 has registered a CAPE ratio above its historical average 97% of the time. This equates to 233 out of 240 months.

While I am a firm believer in reversion to the mean, that does not mean it has to happen overnight or for a week in February.

When economic growth begins to slow, the markets will be a leading indicator. When that time comes, long-term secular problems such as massive debt burdens, deficits and demographics will matter. Until then…

 

Stay Tuned, Disciplined & Patient! {TJM}

The Investor & Character Equation (ICE) | S + R = O

 

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