FYI: The U.S. stock market is overvalued now, period.
That would be worth keeping in mind at any time, of course, but especially now with the major market averages significantly off their late-April peaks. If current valuations were reasonable, then we could count on them to provide a safety net below this market.
Unfortunately we can’t. Yet many stock-market bulls contend that such a safety net does exist. Some are arguing that the stock market correction in late 2018 worked off many previous valuation excesses. One adviser I monitor contended that “valuation metrics [in late April] for the S&P SPX, +2.14% [were] much lower than where they were last year.”
I disagree. Though valuations did improve between the market’s late-September and late-April peaks, the improvement was so slight as to barely improve equities’ outlook. Consider perhaps the most popular valuation measure: The price/earnings ratio. At the S&P 500’s late-September peak, the P/E ratio based on trailing 12 months as-reported earnings stood at 22.5. At its late-April peak, in contrast, it stood at 21.9 — less than 3% lower.
Regards,
Ted
