MAR 8, 2018
Historically, one of gold’s greatest allies for price appreciation has been uncertainty. The aberrant behavior of the P/10 indicator into “uncharted” territory is yet another sign that we are headed toward unprecedented market conditions.
Our monthly market valuation updates have long had the same conclusion: US stock indexes are significantly overvalued, which suggests cautious expectations on investment returns.
In a "normal" market environment -- one with conventional business cycles, Federal Reserve policy, interest rates and inflation -- current valuation levels would be a serious concern.
A common question is whether a valuation metric such as the P/E10 has any merit in a world with Treasury yields at current levels.
In the months following the Great Financial Crisis, we have essentially been in "uncharted" territory. Never in history have we had 20+ P/E10 ratios with yields below 2.5%. The latest monthly average of daily closes on the 10-year yield is at 2.86%, which is above its all-time monthly average low of 1.50% in July 2016.
ORIGINAL SOURCE: Market Valuation, Inflation and Treasury Yields: Clues from the Past by Jill Mislinski at Advisor Perspectives on 3/7/18