Crestmont Market Valuation Update

The recent series of articles by guest contributor Ed Easterling triggered a great deal of interest in the Crestmont P/E ratio. Accordingly I am adding the Crestmont data to my monthly market valuation posts. The articles were written shortly before the April month-end numbers were available, so let's have a look at a pair of charts with the April monthly averages of daily closes for the S&P 500 and the April Crestmont earnings-per-share.

The first is the Crestmont equivalent of the cyclical P/E10 ratio chart I've been updating monthly for the past few years.

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The Crestmont P/E of 20.1 is 47% above its average (arithmetic mean) of 13.7. This valuation level is almost identical what we saw in my latest S&P Composite regression to trend update and somewhat higher than the 41% above mean for the P/E10 (more here).

The P/E ratio of 20.1 puts the current valuation at the 91st percentile of this 140-year series.

The next chart is an update of one included in the second part of Ed's P/E: So Many Choicesguest article. Because inflation is a key driver for direction of P/E multiples, I'll update this chart twice a month: at month-end with the most current P/E and mid-month when the Consumer Price Index is released.

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For a better understanding of these charts, please see Ed's two-part commentary here:

• P/E: So Many Choices, Part I
• P/E: So Many Choices, Part II

And this article provides an overview of Ed's method for determining where the market is headed.

• P/E: Future On The Horizon