By This Measure, The Market Has Never Been More Expensive

The stock market hasn't had a great start to the year. In 2015's first full week, the S&P 500 lost ground and on Monday the price of oil was crashing again and bringing stocks lower, too. 

Still, the benchmark index is less than 3% away from all-time highs, and according to Jim Paulsen at Wells Capital, using the median price-to-earnings ratio, the stock market has never been this expensive. 

Paulsen's comments, published this weekend at Zero Hedge, said that, "As of June 2014, the median U.S. stock was priced at a post-war high at slightly more than 20 times earnings! Similarly, at about 15 times, the median stock is also currently priced at a record high relative to cash flow. Finally, the median price to book value ratio has only been higher than it is currently in two years since 1951 (in 1969 and in 1998 which were both followed by significant declines)!"

The standard price-t0-earnings analysts use to measure value in the stock market is based on the market-cap weighted S&P 500, which is skewed by the largest companies in the index. By looking at the median price-to-earnings ratio, Paulsen believes we get a better sense of the breadth of overvaluation across stocks.

The Shiller P/E ratio, which is an average not a median measure of stock values, is a more commonly cited metric and is at its third-highest point ever. Our own Henry Blodget has often used the Shiller P/E to bolster his argument that the stock market is fabulously overvalued and could be primed for a crash. 

Paulsen isn't calling for a crash, but this data certainly should give investors food for thought.

"Rather than suggest an imminent bear market, the widespread overvaluation of the US stock market mostly indicates vulnerability," Paulsen writes. 

"Until the extreme valuation character of the median US stock improves, the stock market may simply struggle to make consistent gains."