Stock market pricing indicates whether stocks are cheap or expensive in relation to earnings, but it is a poor indicator of market timing. We do not recommend selling stocks when market valuations are high, but advise caution when adding new positions.
Stock Pricing
ASX stock pricing jumped to 76.72 percent, from 73.92 percent last week. The highest reading was 92.23 percent in August 2025, compared to an April 2025 low of 67.85 percent.
We use z-scores to measure each indicator’s current position relative to its historical data, with results expressed in standard deviations from the mean. We then calculate an average of the five readings and convert that to a percentile. The higher stock market prices are relative to their historical mean, the greater the risk of a sharp drawdown.
Buffett Indicator
The Warren Buffett indicator compares stock market capitalization to GDP, providing a stable, long-term ratio unaffected by fluctuating profit margins. The ratio is at 1.13 at the end of April, compared to its long-term mean of 1.02.
ASX 20 Price-to-Sales Ratio
We use a 20% trimmed mean of the Price-to-Sales ratio for stocks in the ASX 20 index to remove the highest and lowest readings, which would otherwise distort the average.
ASX 20 Forward Price-Earnings Ratio
We have limited data on the ASX 20 forward PE, but it still provides a useful measure of current value, using a similar 20% trimmed mean to avoid distortions to the average.
All Ordinaries PE Ratio
The price-to-earnings (PE) ratio is based on the latest trailing earnings (red below), but produces extreme readings if earnings per share (EPS) rise or fall sharply, as in 2008 and 2020, respectively.
All Ordinaries PE of Highest Trailing Earnings
We use a second PE ratio based on the highest trailing earnings to eliminate extreme readings when earnings fall sharply. However, the large resources sector has unusually high earnings volatility, with EPS spikes and falls, necessitating the use of both PE ratios to provide a more balanced view.
All Ordinaries Dividend Yield
The All Ordinaries dividend yield is well below its long-term mean of 4.1%, indicating values are high. We use a reverse z-score on the ASX dividend yield, as lower yields indicate higher valuations.
Conclusion
Stock pricing remains high, increasing the risk of a significant drawdown.
Acknowledgments
- Morningstar: ASX All Ords & ASX 20 Statistics
- Market Index: ASX Statistics
- ABS: National Accounts
- ASX: Historical Market Statistics