History Lesson
There’s no need to reignite old arguments over the use of Yale professor Robert Shiller’s cyclically adjusted price-to-earnings ratio -- the newer debate is over how to interpret it. Bears would point to the gauge of U.S. stock prices relative to 10-year average earnings as being at levels synonymous with the dotcom bubble and roaring ‘20s. Bulls would note the measure is well off peak levels from 20 years ago.

Money Supply
Given the truly unprecedented level of monetary policy support fueling financial markets, some commentators have suggested traders should heed different measures to value equities to incorporate central bank largesse. Tom McClellan, editor of the McClellan Market Report, chooses to look at U.S. stocks relative to the level of money supply -- M2. Broadening this approach to include the increase of such a measure in Europe and Japan shows global stock valuations are bang on their average of the last 18 years.

Versus Bonds
This year’s risk-asset sell-off and rush to havens saw a surge in the spread of global dividend yields to benchmark Treasuries, a closely watched gauge for income investors. But that was before a spate of dividend cuts as companies sought to bolster their balance sheets to deal with the impact of the pandemic. Now that analysts have had time to adjust their dividend expectations, the measure of attractiveness of global equities over Treasuries has fallen back, but remains at levels favorable to stock bulls.

Versus Credit
Comparing the world’s stocks to their credit cousins suggests valuations are more or less back to normal. The spread between the yield-to-worst on the Bloomberg Barclays Global High Yield Index and the dividend yield on the MSCI AC World Index, which soared at the height of the crisis, has retreated to just above its average of the last ten years.

This article was provided by Bloomberg News.

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