{"id":64335,"date":"2026-05-06T09:24:31","date_gmt":"2026-05-06T09:24:31","guid":{"rendered":"https:\/\/thepatientinvestor.com\/?page_id=64335"},"modified":"2026-05-06T09:26:11","modified_gmt":"2026-05-06T09:26:11","slug":"asx-stock-market-valuation-indicator","status":"publish","type":"page","link":"https:\/\/thepatientinvestor.com\/index.php\/asx-stock-market-valuation-indicator\/","title":{"rendered":"ASX Stock Market Valuation Indicator"},"content":{"rendered":"

Updated 5 May 2026.<\/p>\n

\"Stock<\/div>\n

Stock market pricing indicates whether stocks are cheap or expensive in relation to earnings, but it is a poor indicator of market timing<\/strong>. We do not recommend selling stocks when market valuations are high, but advise caution when adding new positions.<\/p>\n

Stock Pricing<\/h2>\n

ASX stock pricing declined to 73.92 percent, from 76.24 percent last week. The August 2025 high was 92.23 percent, with an April low of 67.85 percent.<\/p>\n

\"ASX<\/p>\n

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.<\/p>\n

Buffett Indicator<\/h2>\n

The Warren Buffett indicator compares stock market capitalization to GDP, providing a stable, long-term ratio unaffected by fluctuating profit margins. The ratio fell to 1.10 at the end of March, compared to its long-term mean of 1.02.<\/p>\n

\"ASX<\/p>\n

We use a 20% trimmed mean when calculating the Price-to-Sales ratio for the ASX 20 index, to remove the highest and lowest readings, which would otherwise distort the average.<\/p>\n

\"ASX<\/p>\n

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.<\/p>\n

\"ASX<\/p>\n

The price-to-earnings (PE) ratio is based on the latest trailing earnings (red below), but it can produce extreme readings if earnings per share (EPS) rises or falls sharply, as in 2008 and 2020, respectively.<\/p>\n

\"ASX<\/p>\n

We use a second PE ratio based on highest trailing earnings to eliminate the 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.<\/p>\n

\"ASX<\/p>\n

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.<\/p>\n

\"ASX<\/p>\n

Conclusion<\/h2>\n

Stock pricing remains high, increasing the risk of a significant drawdown.<\/p>\n

Acknowledgments<\/h4>\n