Cape Fear? S&P Peak PEG ratio At All-time High, Shiller CAPE Ratio At Second All-time High As Dow Pierces 26K Mark

This is a syndicated repost courtesy of Confounded Interest – Online Course Notes for Financial Markets. To view original, click here. Reposted with permission.

Yes, the stock market is on a roll with the Dow recently piercing the 26,000 mark. And the S&P500 index has pierced the 2,800 mark. Of course, the massive Federal Reserve intervention (along with other global central banks) has certainly thrown gas on the fire.

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Looking at price levels alone is not meaningful. So, let’s look at two stock market adjusted indices.

First, there is the S&P Peak PEG ratio.  It is a price to peak-earnings multiple, adjusted for long-run trend growth. It is at the all-time high.

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Second, we have Bob Shiller’s CAPE (Cyclically Adjusted Price-Earnings) ratio that is now at the second highest peak (after the Dot,com bubble) and above the notorious Black Tuesday of 1929.

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But it is not just the stock market that may be overheated. How about home prices … again?

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And if we adjust home price growth by hourly earnings by the majority of the population, we see that home prices YoY are growing 3 times faster than hourly earnings YoY.

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This might help explain why The Fed is so timid about unwinding its balance sheet.

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Did someone mention fear?

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