Excessive optimism leads to excessive speculation, which ultimately leads to extreme valuation. The evidence of overvaluation today is not just compelling it's overwhelming.
Analysts use a variety of statistics to judge a market's valuation. Most of these statistics compare the current price of the market to other variables, such as earnings, cash flow, dividends, book value, sales and even gross domestic product (GDP). While no single statistic can be relied on consistently and accurately to judge the market, by looking at many financial ratios we can see whether a market has become cheap or expensive.