Hallelujah: Stocks Finally Undervalued!!

Stock are finally appropriately valued, after being overvalued for the past 17 years. Time to start buying, almost.

For the past 17 years, according to Professor Shiller, stocks have remained persistently overvalued, sometimes violently so. In the past two months, however, they have finally fallen below their long-term average.

Specifically, the average cyclically-adjusted PE for the past 130 years has been 16X. At the end of December, the S&P 500 was trading at 15X.

So does that mean stocks are going to go straight up from here? Absolutely not. As the last 17 years have shown, the gravitational pull around fair value over the short-term is weak. After past market peaks of this magnitude, prices have usually spent decades below fair value, and we expect we'll likely see the same pattern here.

(Via Cluster Stock)