The rally that took stocks to multi-year highs has been running out of steam, with many investors finding it hard to get enthusiastic. It’s not that they’re exceptionally bearish in the near term, but that structural headwinds makes it tough to back up the truck.

Based on the latest stock market valuation work done by Ed Easterling at Crestmont Research, that’s probably the right way to approach the market.

Easterling produces a long-term price to earnings metric for stocks somewhat along the lines of Robert Shiller’s 10-year P/E ratio .

The difference is that Easterling adjusts long-term trends in earnings for gross domestic product growth. The result is that it also adjusts for long-term cycles in profit margins, a particularly hot topic these days.

So where are we now? Easterling pegs the stock market’s current P/E at 20.8.

That compares with a long-term average for Crestmont’s P/E ratio of about 14. However and this is a big “however” Easterling says investors need to factor inflation into their thinking about P/E ratios. For a low inflation environment such as today, the long-term average P/E is 20, he says.

Easterling’s methodology allows investors to easily plug in expectations for future GDP growth. If you think U.S. GDP growth will be about 2.5% next year, today’s P/E is around 19. So pretty much still fairly valued.

The stock market increased significantly over the past quarter.  As a result, P/E has increased further into the range of “fairly-valued.”  The reported P/E is distorted well below the normalized P/E due to currently high and unsustainable profit margins.  The perception of low P/E valuation is likely providing support for the stock market.  If the next downward leg in the business cycle is postponed for another year or longer, and if other economic and international headwinds remain contained, then the market could resurge toward new highs.  At the same time, investors should remain cognizant of the risks confronting an increasingly vulnerable market.

Part of the vulnerability, Easterling says, is that there is “no doubt” that U.S. stocks are still in a long-term, secular bear market.

More from Easterling:

It is historically consistent for secular bear markets to present shorter-term periods of strong returns (cyclical bull markets) followed by periods of market declines (cyclical bear markets).