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In response to a request, I'm posting an overlay of the Q Ratio adjusted to its arithmetic mean and the US market, using the S&P Composite as a broad index of market prices since the beginning of the last century. The Composite index is shown above on a log scale vertical axis with an exponential regression, which bisects the index in a fashion similar to the arithmetic mean for the Q Ratio. As the overlay clearly illustrates, the Q Ratio is not a leading or lagging indicator. Rather it is coincident indicator of the relative valuation of the overall market.
If we rotate the top data series in the chart above clockwise about 19 degrees (so that the regression is horizontal) and align the regression with the Q Ratio mean, we essentially get the chart below, which also includes a third data series, the P/E10 ratio. For more about this three-way overlay, see this monthly update.
Now, wasn't that fun?
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