In one my previous posts I looked at the stock market valuations in the US to conclude that they were in line with recent historical data. In fact the stock market looked cheap relative to most years since the mid 1980s. But that was before the US election! Since the election the stock market has gone up and interest rates have gone up as well. How do stock market valuations look like today? I follow the same methodology of the previous post and start with the Price-Earnings ratio constructed by Robert Shiller. We know that this P/E ratio has been high relative to historical averages (today it stands above 28, a level only achieved before in the 2000 bubble or in 1929. But the P/E ratio depends on several macroeconomic variables, in particular the level of real interest rates. In my previous post I made the argument that once we correct for the level of the real interest rate the current P/E ratio looks reasonable. In particular, if we express the price of stocks as the net prese...