Sunday, April 19, 2015

2015-03 Stock Market Valuation

The Shenzhen Composite ended March at 0.26 gold ounces, up 0.05 ounces from February and up 102% from March of last year.  The index was trading at an average price-to-earnings ratio of 45.30.

March’s close, 0.26 gold ounces, was the highest price paid since September 2007.  The previous stock market bubble peaked out in August 2007.  There has now been 27 months of year-over-year positive price increases, the longest length of time for the data available.

The month-over-month increase in the gold price of the Shenzhen Composite was 23.13%, but the price to earnings ratio only increased 15.41%, meaning the impressive appreciation in stock prices was at least somewhat driven by earnings growth.  However, the last two times the stock market has hit these levels, a bull market that cut the value of the index by at least two-thirds soon followed.