Is the Market too High?

Here is a recent chart of the S & P 500 from approximately mid-November to present.

Since mid-November we are looking at a gain of about 25% (excluding dividends). A very nice run indeed. Many of the US companies that I follow have gone up a lot more than 25% making most of them too expensive.

Once in a while I still go to Barrons Market Lab to get a higher level view of valuation. Right now the DJI sports a P/E of 16.36 and a dividend yield of 2.35%. By comparison the S & P 500 Index has a current P/E of 19.27 with a dividend yield of 2.1%. Of course this is a static view - if we look forward the earnings will be slightly higher and the valuations will look better. The S & P 500 is usually the index I look at - it is much broader than the DJI. The valuations are no longer cheap and are getting to the high end of the range. My danger zone is usually over 20 for P/E all other things being equal. I realize interest rates are very low but will this always be the case? During the early stages of a business cycle recovery you can justify high P/E's since earnings are very depressed. This is not the case now. In my opinion we (US Markets) are slightly overvalued but not critical yet.