One key measure shows the stock market hasn't been this expensive in 13 years

kerry bush debate 2004

(john Kerry and President George W. Bush in 2004Joe Raedle/Getty Images)

The stock market is looking pricey.

We've previously noted the high level of the cyclically adjusted price-to-earnings (P/E) ratio (also known as Shiller P/E), but now, a slightly more straightforward measure of how expensive the market is has hit a level not seen in over a decade.

According to FactSet's John Butters, the S&P 500's 12-month forward price to earnings ratio — which takes analysts' future projections for S&P earnings and the current price of the index — sits at 17.6x, the highest level since June 23, 2004.

Additionally, the forward P/E is now higher than many historical averages.

"The current forward 12-month P/E ratio of 17.6 is now above the four most recent historical averages: 5-year (15.2), 10-year (14.4), 15-year (15.2), and 20-year (17.2)," wrote Butters in a note.

While these levels pale in comparison to the tech bubble, the increase for the ratio has steeply increased since the end of 2016.

"Back on December 31, the forward 12-month P/E ratio was 16.9," said the note from Butters. "Since this date, the price of the S&P 500 has increased by 4.8% (to 2349.45 from 2238.83), while the forward 12-month EPS estimate has increased by 0.5% (to $133.49 from $132.84). Thus, the increase in the 'P' has been the main driver of the increase in the P/E ratio to 17.6 today from 16.9 at the start of the first quarter."

Also, this doesn't mean that the market is going to correct to its average. For one thing, the forward P/E ratio is based on analysts' estimates, which generally lag behind large price increases when policy changes. Additionally, earnings can increase rather than the price level coming down.

Finally, there is no one level at which for the forward P/E is worrying, meaning it could continue to increase.

Whether that actually happens, however, remains to be seen.

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(FactSet)

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