Understanding Stock Market Valuations

Are stocks expensive or cheap? The answer depends on which valuation metric you use. Here's what matters.

P/E (price-to-earnings) ratio: S&P 500 forward P/E of 20 is slightly above historical average (15�18). Higher P/E can mean expensive, or just high growth expectations. CAPE (Shiller P/E) adjusts for cycles � currently near 33, which is high historically but seen before (1999, 2021).

Better metric: equity risk premium � earnings yield (1/PE) minus 10-year Treasury yield. At 4.5% vs. 4% bonds, stocks still offer some premium. But thin.

Don't time the market based on valuations. Stay invested, rebalance, and focus on time in the market, not timing. Dollar-cost averaging wins over waiting for crashes that might never come.