In the 10-year moving average price/earnings ratio, P/10-year MA(E), the numerator is the value of the S&P 500 price index, and the denominator is the average of the previous ten years’ reported earnings. Both are adjusted for inflation using the consumer price index. Similar to a trailing P/E ratio, the P/10-year MA(E) compares the inflation adjusted price of the market at a point in time to the market’s average real earnings over the previous ten years.

To use the P/10-year MA(E) the analyst compares its current value to its historical average to determine whether the market is over- or under-priced. If the current ratio is greater than the historical average, the current price (i.e., level of the index) is high relative to earnings. The index would be considered over-priced and would be expected to revert to its historical mean.