The Rubber Band of the Market is Stretched Too Far
By John Del Vecchio and Brad Lamensdorf
This week’s Chart of the Week dovetails with our analysis of Warren Buffet’s favorite indicator and shows that market valuations are in the nosebleed section.
The chart below is courtesy of Advisor Perspectives and Crestmont. As the chart shows, the price / earnings ratio is over three standard deviations from its mean.
You don’t have to be a math whiz to know that three standard deviations away from anything, is not normal.
It is a rarity.
This chart goes back to the 1800’s. We are in rarified air here.
Truth is, we are far from normal times.
Just look how far we have come from the financial crisis a little more than a decade ago. The froth from the late 1990’s Internet Bubble was worked off, and the P/E swung hard the other way. This set up a big buy opportunity.
Those days are long past.
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