Crestmont P/E is Warning Stock Market May Be Dangerously High
Crestmont Research’s Crestmont P/E gives us a better picture of price earnings to evaluate the stock market. As you can see in the chart in blue below, its present valuation at 32.1 is just slightly below the P/E at about the time the stock market bubble burst in 2000. Why is the Crestmont P/E created by Ed Easterling a better way to look at price earnings on a historical basis? As Easterling explains it, “the business cycle constantly distorts earnings from its core baseline trend.” The Crestmont P/E compensates for that distortion by normalizing earnings based upon the relationship between historical nominal GDP and reported EPS.
Ed Easterling is the author of Probable Outcomes: Secular Stock Market Insights and award-winning, Unexpected Returns: Understanding Secular Stock Market Cycles. He is currently President of an investment management and research firm.