Market Valuation, Inflation and Treasury Yields: January 2026

Market Valuation and Inflation - US stock indexes are significantly overvalued, suggesting cautious expectations for investment returns [1] - The P/E10 ratio is a key indicator of market valuation, with a historical average of 17.7 [1] - Current P/E10 stands at 39.8, with a year-over-year inflation rate of 1.99%, placing it within the "sweet spot" of 1.4% to 3.0% inflation [1][1] Market Valuation and Treasury Yields - The latest monthly average of the 10-year Treasury yield is 4.21% [1] - The correlation between P/E10 and the 10-year Treasury yield indicates that current valuations are in extreme territory, similar to the tech bubble [1] - The post-financial crisis period saw unprecedented low yields and high P/E10 ratios, deviating from historical patterns [1]