Is the S&P 500 wildly overvalued?

Several readers asked me to address the valuation warning from Jason Goepfert of SentimenTrader, who found that the S&P 500 is wildly overvalued based on a combination of real earnings yield and dividend yield.

Let's begin by unpacking Goepfert's chart (annotations are mine). There were five instances since 1970 when the market appeared overvalued based on this metric. The market had already begun falling in two episodes (red boxes: the Nifty Fifty top and the GFC), and this indicator signaled tops in three (grey boxes: Volcker induced bear market, 1987 Crash, and the Dot-Com Bubble). Is a success rate of 60% (three out of five top calls) enough for an effective sell signal?

The full post can be found here.