The Q Ratio and Market Valuation: A Revised Update

June 9, 2016

by Doug Short

The Message of Q: Overvaluation 

Of course periods of over- and under-valuation can last for many years at a time, so the Q Ratio is not a useful indicator for short-term investment timelines. This metric is more appropriate for formulating expectations for long-term market performance. As we can see in the next chart, peaks in the Q Ratio are correlated with secular market tops, the Tech Bubble peak being an extreme outlier.

DYI Comments:  More evidence of an overvalued market.  What is not shown the median stock valuation is now greater than the year 2000.  All levels of the market except precious metals mining companies are way overblown in price giving the appearance of normalcy.  From secular top (year 2000) to secular bottom will be many years in the future.  Normally this journey would have taken 12 to 15 years but due to massive world wide central banks with their sub atomic/negative interest rates the full trip may take as long as 20 years.  Who knows for sure.  However, you can bet as measured by the exponential regression line - stocks will be way below as in 1922, 1932, 1942, and 1982.

The Great Wait Continues

DYI