Are US Stocks Overvalued?

This is just such an information rich chart, even if you are not a CAPE fan:


click for ginormous graphic

Source: Bloomberg


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  1. RW commented on Jun 4

    Probably not.

    The displacement that is the rise of asset prices caused by a fall in safe interest rates may trigger a bubble. But the mere displacement itself–and the fact that asset prices will fall should interest rates rise and “normalize” is not a bubble: it is a carry trade, a tradeoff of higher returns now against a risk of capital loss later. (BDL)

    • catclub commented on Jun 4

      Useful! The zero interest rate is a real thing, that affects stock prices. Unlike the usual generators of bubbles, which are not actually real things (tech stock earnings prospects, house prices going ever higher, intrinsic value of tulip bulbs).

  2. rd commented on Jun 4

    I think the stock market is fairly valued if we avoid a recession in the next couple of years and we can consistently do 3% growth in GDP over the next few years (sorry, GDI – the new preferred measure since GDP isn’t given the desired results). I don’t see revenue and earnings growing significantly otherwise and you need steady earnings growth to justify these high PEs.

    That will require the economy overcoming the retirement of boomers and the demographic divot of Generation X occupying the key “peak earnings years” slot in the demographic curve until the millenial bulge moves into their 40s. Much of the rest of the world is aging faster than the US, so they will have their own headwinds and probably not contribute huge amounts to our GDP. European CAPEs have reset back close to their median values due to concern over their economy over the next few years given their aging population.

    Since every stock market valuation measure is in the top quintile or decile, any significant hiccup would likely create a large downdraft. I would be surprised of a 10% pullback stayed at 10%.

  3. 4whatitsworth commented on Jun 4

    With the S&P PE @ 20.5, Price to sales @1.8. it looks expensive to me..

    Here is a good web site with different ways to look at the S&P. Links at the bottom of the page.

    Great discussion looking forward to seeing what others have to say. It does seems like we are reaching for yield at this point.

  4. wally commented on Jun 4

    The concept of ‘overvalued’ or ‘fairly valued’ only exist in context. What are the alternatives? Compared to what?
    In a low-rate era higher stock prices make sense; they still pay better than the competition. Any measure of ‘value’ that does not consider this is flawed.

    • Futuredome commented on Jun 4

      Rates themselves are overvalued as a tool.

      I don’t necessarily see this as a low rate era. When you have excessive economic growth in the past and now are a based totally on consumption, this is more a reason than financialization and slower growth.

      IMO, the private sector is tapped out. They invested heavily and I mean heavily in the Boomer rise, especially in the 70’s/early 80’s yet people said the economy was bad. That was more a fact when you adjust for real inflation to consumer purchases, consumer spending was terrible despite marginal profits hitting a true peak in 1979.. This business boom(at slower more sustainable pace) until the computerization blowoff in 2000 and after that, business investment appeared to “dry up”. I think the more logical answer was that business investment was saturated by the 70’s and only maintaining what was built was the final extension which is why inflation happened to slow the economy down, which hit consumer spending as residential/non-residential boomed. This lowered real marginal profits because they invested less, but boosted consumption along with supply sided economics, made fiancialization a fixture. Higher consumption rate in the economy, yet slower growth. In otherwards, inflation is easier to get than you would expect…….if you would try. Which is why we don’t try. I bet if todays people tried to live in the 70’s/80’s, they would complain of how poor they felt, GDP is not a great indicator of economic “status” because it doesn’t explain how the parts work and why they work.

      Cape would need to pass 2000’s peak just to have the same impact today.

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