Valuation Ratios for Households and Businesses

Thomas Mertens, Patrick Shultz and Michael Tubbs

FRBSF Economic Letter, 2018

Abstract: Current valuation ratios for U.S. equities and household net worth are high relative to historical benchmarks. The cyclically adjusted price-to-earnings ratio reached its third highest level on record recently, and the ratio of household net worth to disposable income, which includes a broad set of household assets, stands at a record high. Such extreme values of these ratios have historically been followed by reversions toward their long-run averages. However, other current factors, such as low interest rates, caution against bearish forecasts.

Date: 2018
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